Calculate your chargeable hourly rate
If your business charges its services by the hour, then you will need to calculate your hourly rate. Based on the fixed costs, required income, repayment of any loans and the return on investment, your hourly rate will be calculated by dividing the chargeable number of hours by the total costs.
Let’s look at an example. Enrico the Copywriter, works from a small rented office and operates as a sole trader. He has invested $5,000 and has borrowed $10,000 to help set up his business. Enrico must repay $2,500 off the loan principal each year. He would like to earn an income of $50,000 per year from his business and have a 20% return on his investment.
Enrico has estimated the following fixed costs for the year, which comprise:
Based on the chargeable hours from the previous step, let’s calculate:
Enrico would need to charge $51.69 per hour to cover the above costs and earn an income of $50,000.
Enrico’s office expenses have increased to $600 per month and he would like to have an income of $75,000. Calculate what he would now need to charge per hour to achieve this new situation.
You will have the opportunity to submit your answer in the next step (so don’t give away your answers here).
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