Here is one commonly used formula:
Earnings = Salary + Expenses + Profit
Billable Hours = *2080 - Overhead Hours
Earnings divided by Billable Hours = Hourly Rate
*Total Annual Work Hours (52 weeks x 40 hours per week = 2080 hours)
To clarify, let's walk through an example.
Salary - Let's say you are qualified to earn a $50,000 salary.
Expenses - For accuracy, total your projected expenses. However, expenses are often estimated to be equal to salary, so for this example we will set our expenses at $50,000.
Profit - Let's use the standard 20%.
Overhead Hours - To be accurate, total your projected nonproductive hours. I have read that 20-40% is usual. For this example, we will use 480 hours. According to the HTML Writers Guild, this is the number used by most ad agencies.
Now, let's put it all together:
Earnings = $50,000 (salary) + $50,000 (expenses) = $100,000 + 20% (profit) = $120,000
Billable Hours = 2080 (full time annual hours) - 480 (overhead hours) = 1600 hours
$120,000 divided by 1600 = $75 (your hourly rate)
The formula above is a common one that offers a simple but effective method of computing rates. A good resource is The HTML Writer's Guild How to Set Rates FAQ. It covers five ways to determine your rates.
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