The formula
Hourly rate = (costs + profit) ÷ billable hours
What it means
The sum almost everyone does is dividing what they want to earn by the hours they work, and it is the one that leaves costs uncovered. Part of every working day goes on quotes that do not land, admin, training and chasing clients, and nobody pays for that time: it has to be spread across the hours that do get billed. At seventy per cent billable, which is a realistic figure, the hourly rate comes out forty per cent above the naive calculation.
How to work it out by hand
- Add up every annual business cost, your own contributions included
- Add the profit you want left at the end of the year
- Work out billable hours: hours per week × weeks worked × billable percentage
- Divide the target by those hours
What is worth knowing
The default of forty-six weeks already deducts holidays and public holidays; putting fifty-two is counting yourself at work on Christmas Eve. A realistic billable percentage for someone starting out is closer to fifty per cent than seventy, and that is the number that hurts most to adjust and that changes the answer most. This gives a floor, not a price: above it sits whatever the market will pay, which is a different conversation.