How to Calculate Your Charge Rate
The simple way to get started
Sarah had finally finally decided to make the jump. She was going to try her hand as an independent consultant. The excitement was palpable (what the heck does that even mean — sounds right though).
Until the fear crept in, and she thought to herself “how much should I charge for my time”.
“How much should I charge for my time”.
Like freelancers, consultants charge clients a rate per unit of time, whether it be an hourly rate, day rate, or weekly rate.
Luckily Sarah came across a nifty online tool that gave her the answer. Her charge rate should be $500/day. This seamed a bit high straight out of the traps, but she had nothing else to go with.
The time came to speak to her first client, but restrained by the possibility of being completely off and looking like an amateur, when asked by the client what her rate was she responded “What do you think is reasonable”.
To which the client responded “Well the lowest we pay for consultants is …..$800/day. So if that is ok with you we’ll start with that.”
That’s 60% higher than what she thought was fair and reasonable — how could she have gotten it so wrong? How should Sarah have worked out her hourly rate?
Let’s start with a simple rule of thumb. Take your current hourly rate and times it by 2. That’s it. That simple, it’s not an exact science but it will get you in the ball park. It will get you a rate that is reasonable to start with — if you’ve been an employee your whole life it may seem high, but trust me no-one will bat an eye, and if they do they’re delusional. This is probably somewhere around half to one third of what you would get charged out at if you worked for a consulting business.
Now you may be wondering, “how the hell do I calculate what I get paid hourly, I’m on an annual salary?”. I’ll throw another rule of thumb approximation at you — take your current annual salary, divide it by 1000 and then halve it. For example:
- Current annual salary = $100,000
- 100,000 / 1000 = 100
- 100 / 2 = 50
- Therefore current hourly rate = $50 / hr
So putting it all together:
- Current annual salary = $100,000
- Current hourly rate = $50 / hr
- Starting charge rate to clients = $100 / hr
That simple.
Do you have a different way of calculating your charge rate? I would love to hear from you.
