How much should I charge my clients?
July 1st, 2008
Doing Business, Web Design
Salary
To begin, you’ll want to determine an annual salary for yourself. Your salary should be based off your experience & location. Thankfully, salary.com has a nifty little wizard to determine the most relevant salary range based on your skill set & location. Once you’ve filled out your info, you’ll be taken to a graph that looks kinda like this:
Using this graph, choose a salary that best fits your experience. Don’t be modest, if you have the experience you certainly deserve the pay.
Overhead
Our next thing to take into consideration is Overhead, or the cost of doing business. Whether you own an office complex or you work out of your mom’s basement, it usually costs money to make money. Overhead can consist of:
- internet
- phone
- software
- hardware
- rent
- utilities
- advertising
- business insurance
And many other things (technically salary falls under this category too). In addition, your medical insurance, disability insurance, 401k and taxes, or fringe benefits, also fall into the overhead category. The salary wizard will also give you an estimation of these costs. Just click on the “benefits” tab:
Profit
You can choose how much profit you make - it’s a perk of running your own business. This amount is usually expressed as a percentage of total costs. This percentage is entirely up to you, and provides money for you to grow and develop your business. A profit margin between 10% and 25% is a good range. Go wild.
Billable Hours
Let’s go with the standard 40 hour weeks, holidays, and a 2 week vacation. That gives us anywhere from 1500-1800 billable hours depending on the holidays you want off. If you want more vacation or you think you’ll spend a considerable amount of time chasing jobs (not making money), you may want to reduce the amount of billable hours.
Crunching the numbers
I’ll use myself as an example. I’ve been developing websites for about 5 years, and I live close to the Allentown, Pennsylvania region. Web Designer, Sr. sounds about right, and that salary ranges from about 60k to 100k. Since I have 4 years under my belt, I’ll go with a salary of $80,000.
Then we have overhead. I’ll have to estimate what my costs are for the next year. I’ll spend about $500.00 for my internet, $1800.00 on hardware/software, $5,000.00 on advertising and about $20,000.00 on fringe benefits. I’m probably missing more, but this is only an example. I’ll estimate my overhead at $28,000
Now for my profit. I think I’ll make a cool 25% for growing my awesome business. To get this figure I’ll add my salary and overhead together, then multiply it by 25%. Doing this gives me a profit of $27,000.
And lastly, I’ll use 1600 hours for my yearly billable hours because I love taking time off. My salary, overhead and profit equal a total of $135,000.00. We multiply this number by 1600 to get my hourly figure, which equals $85.00. So basically, if I want to make my salary, pay my bills and grow my business, I need to charge $85.00 for every billable hour I work, or about 33 hours a week.
In the end
I can use this data to either run with it and charge by the hour, or use it to figure out set-pricing per job. Either way, I know what I need to charge to stay in business. It’s a little piece of mind that goes a long way.
July 1st, 2008 at 11:12 pm
Good article, Kevin. What a shame that salary.com only offers its service to people located within the US.
I tend to use an hourly rate, which changes depending on the size and nature of the job. I use a formula I got from the blueflavor blog, which is as follows:
Task x Time(Complexity x Effort) x Rate = Price
Where Task represents the number of times you have to do something; Time(Complexity x Effort) represents the number of hours (Effort) multiplied by how demanding the work is (Complexity); and Rate is hourly rate. I find this works well for me.
July 2nd, 2008 at 7:24 am
Thanks!
You forgot the “pain in the ass” factor
July 2nd, 2008 at 9:20 am
yes, the PIA factor is a good one to remember. too bad the client doesn’t tell you up front “hey, i’m gonna be a pain to work with”
good article. i think i need to give myself a raise. maybe that should be your next topic. how to gently tell your old clients (without losing them) that your rates are going up.
September 2nd, 2008 at 8:16 am
Good article. I struggle constantly with prices. One of my current clients owes me well over a million for PIA factor at this stage.
November 21st, 2008 at 6:16 am
Thanks! As a new freelancer, I’m constantly looking for methods to reduce overhead and increase profits - without jacking up the price of my projects.
The first couple of sites I took on were pretty good-sized projects and I really under-bid and ended up loosing money.
Salary.com rocks! From now on, I’ll divide up my annual slary by 12 (one good project a month) to determine what I need from each one.
Thanks!
January 12th, 2009 at 1:11 pm
Hi,
Some very interesting points. But the size of the project should be considered. If you have a project that will only take 30 hours compared with a 6 months project, some form of price break should be used to entice potential long term projects. Better to work on a consistent 6 months project (guaranted income) that bits and bobs over the 6 months.
regards
George
February 27th, 2009 at 1:24 pm
Nice post.
March 16th, 2009 at 5:41 pm
Is there a way to become a content writer for the site?
May 10th, 2009 at 6:50 am
You know, he pain in the arse factor exists because you tell yourself that your client is a pain.
While they are talking they are buying! To avoid the pain in the arse make sure that your clients questions are answered before you begin.
Problems exist because YOU havent done your job right when you pitched!
You were probably shit scared of losing the business so you kept evrything to the basics and the cost accordingly.
Dont assume that your client has the knowledge that they assume you have!
The reason they become a pain in the arse is usually because of your incompetence. Face it! In regard to how much to charge then you have a good guide layed out here. Just remember they come to you because either they dont know how or they want to get on with what they do best … which is usually sales, orders, attracting new clients and or investors.
Other than that no one should be working for themselves for less than 120 Euros an hour.
Buying equipment programmes maintenance etc cost. If your client is worth his salt they understand that great work, and make sure it is great work , costs.
Good luck, just get as much joy as you can everyday. People love the happy and succesful.
A
May 14th, 2009 at 10:05 am
@Baldchemist Great points