Why I Think A 25% Billable Ratio Might Be Most Realistic For Freelancers
You Can’t Be Productive All The Time
I’ve discussed here, before the fickle but important business of computing your target hourly freelancing rate.
My Freelance Hourly Cheat Sheet
Several people have reached out to me recently on foot of two Medium posts which I wrote trying to dispel some of the…
How to Set An Hourly Freelance Rate
Two months ago, I provided some guidelines for tackling one of the most difficult aspects of working as a freelance…
Mathematics, to put it mildly, are not my favorite subject in the world. Also: everybody has their own proprietary twist on figuring out this important calculation.
The novelty of my approach — as I discussed in the posts linked above — is something I call the “billable ratio.”
The billable ratio is the percentage of time during which you are not actively working on billable client work.
Broadly speaking, to figure out your hourly rate, you divide the total amount of hours you work by your target income. There’s a little bit more magic involved to compute for expenses and vacation and sick time (you subtract those from the stock of hours you have and add expenses over the head of your income).
Here are the formulae:
The billable ratio exists because you’re not getting paid for the various activities that are necessary to make your freelance business tick over but which aren’t billable to clients:
- Administration work
- Fixing your website
Knowledge Workers Don’t Typically Work 8 Hours Back To Back. Why Should You Expect Yourself To?
The more I think about it, however, I think that even setting your billable ratio at 50% might be overly optimistic.
Here’s the reason.
If you think that you’re going to be spending 8 hours per day on productive work (whether billable or non-billable) then you’re probably mistaken. And this faulty assumption is going to result in a skewed end figure.
If you work from this assumption, then you’re not factoring in the time that you spend:
- Browsing the internet
- Reading Medium posts like these
Sure you could subsume this under the header of “professional development” (as a non-billable). But I think that you’re better off just seeing it as what it is: non-productive downtime.
But guess what? That’s totally normal and is in fact how most humans work at knowledge-centric jobs.
Research has shown that your average office worker is only productive for 3 hours per day. The rest of the time? Meetings, water cool chats, and checking the phone.
This is why, in short, I think that setting your billlable ratio at 25% of your available stock of time actually makes more sense:
- Firstly you’re accounting for the fact that half your workday is likely to be spent on non-productive activities that are both unbillable and unrelated to furthering your business
- Then you’re factoring in the 50% of that stock of time (50% * 0.5 = 25%) that’s going to be spent on all the various non-billable activities that keep your business ticking over.
Sample Working At 25% Nonproductive Factor
To be less dramatic and factor in 25% non-productive hours (so 75% total productive hours) and 50% client billable activities your total billable factor would be 100 x 0.75 x 0.50 = 0.375.
If I planned on earning a monthly income of 15,000 NIS (and had 1,000 NIS in average monthly expenses) then I would need to cover 16,000 NIS per month (turnover) through my hourly.
There are 22 working days in your average month. Subtracting 2 days for vacation means dividing by 20. 16,000 / 20 = 800 NIS.
Billing at a total ratio of 37.5% would yield an hourly here of 800*0.375 = 300 NIS / hour.
Lesson: Don’t Undershoot On Your Hourly
It’s very easy to undershoot on your hourly.
This means that you’re going to be chasing your tail trying to keep up with the demands of your clients all while wondering why you’re feeling burnt out and frazzled.
I’m updating my billable recommendation from 50% to 25% to reflect the time that freelancers are humans and will likely be spending time during the workday on non-billable objectives as well as commercially-related non-billable hours.