Is there actually a formula for calculating a sustainable hourly rate for a self-employed designer?
Previously on Dear Design Student, Daniel Mall wrote about pricing. Here’s another take on setting your rate when you first start out.
This is one of the great questions in professional service work. It’s so important that maybe it’s worth answering more than once. One size, in this case, may not fit all.
When we start out in our own businesses, or as freelancers, it’s hard to get a handle on how much to ask for any piece of work. Part of this is that we may not have the experience yet to estimate value “on-the-fly”. Part of it is that we don’t yet know what the market will bear. And part of it is that talking about money is hard.
But you do know that you have time to sell and you know you need to make money to live. You know you’d prefer to live comfortably, rather than struggle. So, let’s concentrate on what we do know, and find out what you need to charge per hour to make this happen.
Fortunately, there’s actually a pretty simple set of calculations you can make in order to work out this baseline number. First of all, you need to figure out one very important figure — how much money do you want (and need) to make per year? At the start of your career this is probably set for you by the market. The AIGA in the United States and AGDA in Australia both have salary surveys that let you know what an employed designer at various stages in their career should expect to earn. But only you know what you need to make in order to make ends meet.
For the sake of this article, let’s say you need a before-tax income of $60,000 per year to keep the lights on, fuel in your car, and the wolf from the door. Our exercise here is to make sure you make at least $60,000 — and hopefully more.
There are 52 weeks in the year, but you’re not going to work all of them. You’re going to need 4 weeks of annual leave (vacation), and you should allow two weeks a year for sick leave. So that only leaves 46 weeks each year in which you can earn.
There are 40 working hours in a week (give or take depending on the laws where you are). You’re self-employed now, so you will spend at least 20% of your time engaged in marketing and doing pre-work. That means phone calls, emails, proposals, and all the other stuff that actually gets you work.
So now you really only have a 4 day work-week. 32 hours. Nobody I have ever worked with is 100% efficient, so know that you are going to lose at least an hour a day to friction — the crap that gets in between work. That friction could be phone calls, responding to tweets, and reading Dear Design Student. In your gut, you know already that it’s all stuff you shouldn’t really bill to your clients.
That leaves you with a mere 28 hours in which to earn each week. And that’s if you’re effective and stay focused. Now, 46 weeks with 28 hours in each gives you a working year of a just 1,288 hours. If you’re still keeping count here, you’ll notice that this means there are in excess of 750 hours each year that you probably won’t be able to bill.
From here on out the maths are simple.
You want to make $60,000 a year out of those 1,288 hours? Well 60,000 ÷ 1,288 = 46.58, so your baseline rate is $46.60 per hour. Can you charge more? Sure, if you’re good enough. Can you charge less? Absolutely, but now you’re ready to go back to Dan’s article and see how you start thinking beyond hourly rates. 💋
Ross Floate is the creative director of Floate Design Partners, a firm that creates digital products and processes that help to provide lasting benefits to clients and their customers. He’s also co-host of The Nudge, a podcast about being better designers.