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How do you specifically and rationally calculate your hourly rate as an entrepreneur? Here are some steps you can follow to make life easier.
“What is your hourly rate?” That is the million-dollar question for entrepreneurs torn between asking for a low amount in order to obtain contracts and requesting a rate high enough to turn an interesting profit. But what if you simply calculated your optimal hourly rate?
This is what Valérie Parizeault did about five years after launching her business, Studio Rose Flash, a company specializing in websites and brand image. She decided to share the strategy she used for calculating her rate on her blog.
“Money is an emotional issue, but at one point, the problem needs to be viewed from a mathematical perspective,” states the entrepreneur.
1- Estimate your business costs
First, calculate how much it costs to run your business. Depending on the legal status of your company, costs vary.
For example, if you decide to create a company, the initial incorporation fees are $325, and add to that nearly $100 in annual costs to maintain your company in good standing. You also need to set aside money for extra accounting fees since you will need to file both your personal and business income tax returns.
You should also determine whether you will occasionally require consulting services, or if you will need to hire employees, with the associated payroll taxes they entail such as the Quebec pension plan and employment insurance.
It is also important to take into account all the rest: office space costs, transportation, equipment, furniture, office supplies, telecommunications, insurance, advertising and business development costs, etc.
As an example, let’s say you are not hiring any employees for now and that your expenses are about $25,000 per year.
2 – Estimate personal expenses
You then need to ask yourself how much you’d like to earn per year.
“I recommend entrepreneurs determine both the salary they need to cover living expenses and the amount that they would be happy with in order to get a good idea of the room for manoeuvre,” indicates David Decary, consultant/trainer.
In order to do so, you need to analyze your yearly costs. This of course includes your residence and the price of groceries, but also transportation, vacations, and other personal expenses such as sports and outings. And don’t forget contributions to your registered retirement savings plan (RRSP).
As an example, let’s say that you can live on $40,000, but to really be comfortable you should aim for $60,000.
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