Everything that you might have thought about, and possibly forgot. You decided to start doing freelance work and everything is ready for you to be your own boss, except for one rather important point: how much should you charge your clients per hour? And what all to keep in mind while deciding your hourly rate as a freelancer?
Deciding on how much to bill your clients per hour can be tricky sometimes. Of course, you would like to make a profit for your efforts, but at the same time, you don’t want to price yourself out of the market. Thumb sucking a number can be your answer, but how do you justify your price if someone complains that your fees are too high? And are you sure you are still able to cover all your expenses related to your freelance business, or will you be finding yourself in hot water at the end of the month?
Slow down and take a deep breath! Calculating your hourly rate isn’t that complicated. There are, however some maths involved so it might be easier to open an Excel spreadsheet at this point, else you can just scroll down and use the calculator that we’ve already built for you.
Money in your pocket – your salary
Your starting point in calculating your hourly rate as a freelancer should be to determine your monthly salary. Once you have decided this, you need to determine your annual salary by multiplying your monthly salary by 12.
Target monthly salary: AED 10 000
Target annual salary: 10 000 * 12 = AED 120 000
Don’t forget the bills – annual expenses
Now that you know what you would like to earn per month, it’s time to determine your expenses. Take things into account such as software subscriptions, internet fees, office space, cellphone expenses, your visa, etc. Remember to convert everything, where applicable, to their annual costs so that you don’t skew your calculations.
Expected annual expenses: AED 16000
But wait, there’s more – actual annual salary
When determining your hourly rate, you need to consider your personal salary as well as your annual expenses else you might not be able to cover your personal expenses or business-related fees.
To calculate your adjusted annual salary, you simply need to add your target annual salary to your expected annual expenses.
Adjusted annual salary: AED 120 000 + AED 16 000 = AED 136 000
Tick-tock – how much do you want to work per week?
The next step is to determine your working hours. Normal working hours in the UAE are 8 – 9 hours but one of the perks of being a freelancer is that you can decide how long you want to work. Needless to say, it most likely won’t work if you decide to work only 4 hours a day and overcharge your clients to make up for the “lost” time.
Determining your annual working hours is quite simple: decide the number of hours you want to work per day and multiply it with 22 – the average amount of working days per month.
Working hours per day: 8 hours
Working hours per year: (8 hours * 22 working days) * 12 = 2112
All work and no play… Annual leave, public holidays and sick leave
These might just be the nitty gritty details that you forget to include in your calculations. Who wants to have to work while everyone else is having a fun day off? This is what you need to consider: how many weeks of annual leave do you want to take per year, how many public holidays are there, and what if you get sick somewhere along the line?
The UAE has around 15 public holidays each year. Sick leave and annual leave are up to your discretion to decide how much time you want to schedule for yourself.
In order to calculate your hours per year, you need to multiply your weeks of vacation by 5, then add the total public holidays and anticipated sick days.
Annual leave: 4 weeks
UAE public holidays: 15 days
Number of sick days anticipated: 5 days
Hours off per year: 8 hours * ((4 weeks *5 days) + 15 days + 5 days) = 320
Tying up loose ends – non-billable hours
Lastly, you need to calculate your billable hours per year and bring into account non-billable activities such as admin tasks.
Billable hours per year is calculated by subtracting the hours off per year from the working hours per year.
Billable hours per year: 2112 workable hours – 320 off hours = 1792 billable hours per year
Approximately 25% of your time will be spent doing admin tasks such as preparing invoices, following up on new leads or preparing proposals for new clients. It is good practice to subtract an additional 25% from your billable hours per year to make up for these lost hours.
Adjusted billable hours per year: 1792 billable hours – (0.25 * 1792) = 1344 adjusted billable hours
Bringing it all together
Lastly, after all these lengthy calculations, you are finally ready to determine your hourly rate as a freelancer. To determine this, you simply divide your adjusted annual salary by the number of billable hours per year.
Rate per hour: AED 136 000 / 1 344 billable hours = AED 101
Does the same shoe fit everyone?
One last thing to consider when working out your hourly rate is that some projects might be so big that it’s financially not worth it for your clients to pay hourly rates. Or you might be so skilled in a specific task that it isn’t worth your time to bill per hour.
Remember that the same glove doesn’t fit everyone. Use your discretion and your hourly rate as a baseline to work out a retainer fee for clients on bigger projects.