What's your hourly rate?

I'm naming numbers

Nearly six years ago, I was just about to land my first client. After spending what felt like a million hours in a salaried, W2 situation, I had never once thought about what my hourly rate should be.

I did what anyone without knowledge, research, or any experience would do. That is to say, I did the exact wrong thing.

I was making about $145K at Pepsi as a Senior Marketing Manager at the time. (This was over 6 years ago. I have no idea what they make now!)

I figured $145K, divided by 50 weeks a year, divided by a 40 hour week means:

An hourly rate of $72.

Then, I thought, well I’m pretty good at this, so I can charge more. And I raised it to a whopping $85/hour.

If you know more than I did six years ago, you know this was possibly the worst thing I could have done.

• I did not account for the additional 15% of self employment and unemployment taxes I’d be paying.

• I didn’t make the correct assumption that I’d be working fewer than 40 hours a week, 50 weeks a year.

• If I’d done any research whatsoever, I would have learned that my market rate was probably closer to $150-175/hour.

In short, I gave myself a $75,000 pay cut. Whoops.

Here is what I should have done instead:

Make sure you want to be charging hourly

If your work is better suited for project, don’t charge hourly. Not sure? This article (“Deciding on Project or Hourly Rates”) is a good place to start.

Multiply your desired salary by 1.25 to 1.3

Doing this takes into account the taxes you pay, the office supplies you have to buy (no more free work laptops!), and the software you have to use to get your job done. Not to mention insurance, website hosting, and business registrations. Oye.

Divide that number by 1,000

This is a more reasonable number of hours you’ll work in a year, assuming you’re full time.

Pressure test that number.

I once heard advice that you should charge a number that almost makes you want to throw up because it’s so high. That’s sort of good advice, but it ignores one key thing: what will your market pay?

I would love to charge $900/hour. Saying that price makes me want to puke because it’s so high. But guess what? The potential clients in my market don’t want to pay that.

So you need to do two things:

1. See what other people similar to you are charging. Look on their websites. Check out what they say on social about pricing.

2. Ask people in your network who are doing something similar. I feel like no one ever gives this advice, but you can learn so much from a single phone call in which you say, “Hey, I’m thinking of charging XXX/hour. What do you think about that?” You’ll get information about what your market will bear, and live, in-the-moment feedback on your pricing. Plus, you’ll see how it feels to say your number out loud.

After that, my friends, you’ve got your hourly rate. Or at least your ballpark number.

Let’s try it again for me:

($145,000 x 1.3) / 1,000 = $188/hour

Talking to folks in my industry put my hourly rate anywhere from $150-250, right in line with my calculation, but $150-250 gave me a range I could operate within if the client was a bigger, enterprise client ($250) or a smaller client that perhaps couldn’t afford a huge rate, but with whom I really wanted to work ($150).

Get Industry Peers

If you are looking at #2 and thinking to yourself, “I’ve got no one to ask about that!” consider becoming a paid subscriber here. I hold Office Hours for paid subscribers on the last Thursday of every month, and even if you can’t come, you can submit a question ahead of time and get the recording after.

One of those questions can be: “Hey, I’m thinking of charging XXX/hour. What do you think about that?”

Business [Comma] Woman is for anyone building (or thinking about building) a service business. Whatever you’re good at: accounting, tarot card reading, window washing, marketing, therapy - if it’s legal, we want you to make money at it. We focus on the stuff that gives entrepreneurs hives: getting clients, marketing services, selling services, pricing, etc. If this article resonated or was helpful, please share it!