The Ultimate #1 Formula for Pricing Your Services for Success

When you first start your side hustle, nine times out of ten, you’re gonna be focusing on a service based business. The reason? Because it’s easiest to get started with.

What’s not so easy is figuring out what you’re gonna charge clients. In fact, when it comes to pricing your services, if you’re anything like I was when I first started, you’ve probably just about talked yourself out of starting your side hustle all together!

So, here’s what we’re going to cover in this post:

• What you need to include when figuring out your hourly rate
• How to work out your hourly rate
• How to figure out a project rate

First up, we’re going to work out what your hourly rate is going to be, because you can’t work out your project rate without it.

Now, I just wanna get a couple of things out of the way first:

• This rate may not apply initially if you start working on sites like Upwork.com — this is because you haven’t ‘proved’ your worth on these sites, so you’ll need to price yourself lower initially (I’m talking 4 weeks tops) until you get your first couple of gigs. Then you can raise that rate back to your ‘normal’ rate.
• You need to factor in your experience within your side hustle skill. If you’re just getting started, your rate should be a little lower than the average rate being charged. If you’re very experienced, then you can charge above the average rate. The best way to ‘test’ this is to take the skills tests offered on Upwork.com — this will give you the best idea of where you fit in terms of experience. You should do this regardless of whether you plan to find clients on Upwork or not, because it gives you a good basis of where your skills actually sit and you can use the tests to back up your claims when pitching clients (consider adding them to your portfolio!).
• A project rate is not just based on your hourly rate times the number of hours you’ll work. You’ll learn more about how to work this out further on in the post.

To get started, grab a pen and paper. I find that when I’m working out formula’s like this, it helps to physically write them out.

How to Price Your Services: Hourly Rate

The first area of the formula is focused on determining your base rate, which is your hourly rate or what others call the minimum acceptable rate (MAR).

The formula that I use looks like this:

Average Hours Worked per Month (x your current wage + 10%) + Monthly Overheads/Average Hours Worked = Hourly Rate

Once you figure this part out, you can use this as your bottom line or MAR.

There are other factors to consider before you work out your final hourly rate:

#1: Length of time it takes to complete a task: Whether you opt to go with an hourly rate or not, you need to know how long it’s going to take you to complete each task associated with a project. In most cases, this is going to be a guesstimate initially, until you’ve got a few gigs under your belt.

#2: Your overheads: This is things like your internet connection, power usage, rent or mortgage, marketing, insurance, etc. Know what these are for a 12 month period and then work out what portion of this will need to be added to your fee. I tend to break these down into a monthly figure to make it easier to manage.

#3: Tax: You’re going to have to pay tax at some point, so factoring this in now is your best bet to ensure that you don’t get landed with any unexpected tax bills.

Consult a local accountant on what tax you’ll be liable for. If you’re still working full-time, you will more than likely offset any tax by claiming expenses on your taxable income, but a qualified accountant will give you the best advice on this. I’m no tax specialist!

Let’s look at this in an example… Let’s assume you’re a part-time graphic designer.

Using the formula (Average Hours Worked per Month (x your current wage + 10%) + Monthly Overheads/Average Hours Worked = Hourly Rate), we’ll assume:

• Your current wage = $30 + 10% = $33
• Average Hours worked per month (in your side hustle) = 20
• Monthly Overheads = $110

($33 x 20 = $660) + $110 / 20 = $38.50 is your hourly rate

Remember, you’ll need to factor in tax here as well. I’ll leave that up to you, once you’ve chatted with your accountant or tax specialist, you can add this into your final rate.

Before we move on, take a moment to do this for yourself — it’s your turn!

Once you’ve identified your hourly rate, it’s time to think about what you’d charge on a project, particularly if you’re going to be working with clients direct, bypassing Upwork.

How to Price Your Services: Project Rate

As you become more experienced, you’ll start to price your services as a project rate, rather than by the hour. This is where you want to get to in your side hustle, because it’s where you’ll make the most money and truly get paid what you’re worth.

For this rate, we’ll use a slightly different formula:

Hourly Rate x Approx. Hours to Complete Project + Project Costs + Profit % + Tax = Project fee

Let’s talk about the different parts of the formula, so everyone’s on the same page:

#1: Project costs: Do you need to buy supplies or software to complete this project? You might have to buy photos or domain names, so make sure that these are factored into any fees you quote.

#2: Profit: This is a percentage that you’ll add once you’ve figured everything else out. It reflects your experience and the value you bring to the project. Typically between 15%-30%.

#3: Market conditions: This is something you will need to factor in overall; particularly when there’s a lot of demand for your work, you can charge slightly higher rates. If there isn’t a lot of demand, then you’ll need to price your rates accordingly. It’s all about perceived value and demand from your client’s’ perspective.

Let’s look at an example:

Using the same example from above, you’re a part-time graphic designer being asked to price creation of a brand kit for a startup.

Using the formula (Hourly Rate x Approx. Hours to Complete Project + Project Costs + Profit % + Tax = Project fee), your project rate would be:

• Hourly rate = $38.50
• Approx. Hours to complete project = 15 hours
• Project costs = $100 (for stock photos)
• Profit % = 15% (you’re just starting out)
• Tax = 32%

$38.50 x 15 + $100 + 15% ($101.63) + 32% ($249.32) = $1,028.45

It’s important that you factor tax into the equation on both project and hourly rates, because at some point, you’re going to have to pay tax anyway. So why wouldn’t you collect it right from the start?

Now when I say tax, I’m talking about your goods and services tax, state tax, federal tax, whatever it is that is added to a product when you buy it, this is the tax I’m referring to.

I’m not referring to the tax that you pay on your income… that comes out of your pocket, not your clients.

When you receive payment from a client, make sure you put the tax portion (both what you’ll have to pay on your income and the state, federal etc tax) into a separate account (preferably one that’s earning interest!) so that when tax time rolls around, you’re ready!

Your accountant or tax specialist will be able to assist you with this, and I recommend that you chat with someone early on in your side hustle, so that you’re not having to fumble around come tax time. Do that, and you’ll be stressed out!

In the example above, tax is added at the last point, but you could add it to your hourly rate if you use the rate formula spreadsheet. It’s entirely your call, which you can grab below if you haven’t already.

I hope that this makes sense. If I haven’t covered everything or you’ve got a question, let me know in the comments below and I’ll do my best to answer them.