Originally Posted by alcbiz

I am planning to review my rates yearly or so; consequently, I have included a phrase in my contract that states rates can be increased with a 30 day notice to client(s) at least once but no more than twice in a one year period. I almost hope I can manage expenses so I don't have to increase my rates at all. Could that be wishful thinking? LOL! I do have one question though. I've read that new companies should expect to market their business up to 50% of their time so that billable hours really would be much less than 2,080. Any thoughts on this?

I recently read the following, and it seems to be sensible and straight forward:

A normal work week for most jobs is 8 hours a day for 5 days. There are 52 weeks in a year but most workers get a two week vacation. So, 8 X 5 X 50 = 2000 hours worked in a year.
Many companies also give 10 holidays, which brings it down to 8 x 5 x 48 = 1920.
Many companies also give 5 days of sick/personal time per year, which brings it down to 8 x 5 x 47 = 1880.
Finally, if you are calculating how much time people actually spend on their job (as opposed to company meetings, bathroom breaks, surfing the Internet, etc.) a common metric is 80%. Therefore, if you are looking for how many hours you can expect someone to actually be productive in a year, 8 x 5 x 47 x .8 = 1504 hours is a reasonable maximum. This is an important number when you are dealing with billable hours in a consulting environment.

Great information, Peppy! That definitely changes the calculation, doesn't it?

To make the required gross of $77,047/year, at 1504 hours (per Peppy's above post) you need to bill $51.23/hour - an increase of $14.19/hr over the original calculation.

Example:

Need: $77,047/year to make ends meet
Billable Rate $51.23/hr
Required billable hours: 1,504/yr
47 weeks/yr = 32 billable hours/week required (2 weeks vacation, 10 holidays, 5 sick days)

So - you can still work a 40 hour workweek and cover the income/expense needs (32 hours) and have 8 hours left per week for marketing, networking, etc. If you work more billable hours than that per week and put the extra income aside each month, you have padding for the times you don't have 32 billable hours/week.

FYI - after calculating what I needed to earn, I compared it to the going rate for my 'job title' and ended up charging a higher rate. However, I was then confident that I would be earning enough even if my billable hours weren't as high as I hoped and I knew the minimum hours I had to bill to make ends meet were actually 2% lower than my estimate. On an average year of 1504 work hours, 2% works out to 30 hours of 'lost' billable time; good padding for the lean times.

Very helpful post! I will definitely be using this to calculate my rates, so I do not put myself in debt. Thanks!

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~Barbara~
Virtual Barbara

Thanks for posting that! I was just looking for that information today to consider increasing my rates and what I should raise them to.

WOW.....I am just starting and the whole "figuring out the hourly" has me in a frenzy. My husband is full time employed, and doing pretty ok. So this is something we hope to BUILD together. But I never considered that GIANT percentage taken by the govt. Thank you so much for that!! (PS....I don't even know how to "PM" yet, took me a second to figure out what that was. But I am very interested in any further number-crunching you have to offer.) Thanks again!

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Girl Friday Results
www.girlfridayresults.com

Thanks to you both, Lily and Pepe. I have been having a difficult time figuring this rate thing out. I want to be fair, but not short-change myself in the process. Your posts will be a great help.
Wendy Burney

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http://www.anofcextension.com
EHR implementation/support, Computer software training, Medical Billing and Coding

Originally Posted by girlfridayresults

(PS....I don't even know how to "PM" yet, took me a second to figure out what that was. But I am very interested in any further number-crunching you have to offer.)

I believe you need to have 25 posts on VAF to be able to pm. Nonetheless, I have a free budget spreadsheet download on my book site. Click on the link below my signature and at the bottom of the page click on "I want the sample" to get the budget spreadsheet.

Thanks for this! I was actually planning on charging what I was making hourly at my fulltime job, but I decided to up it by $5 after this, especially considering that I'm responsible for my own taxes.

Originally Posted by Paulette

Thanks for this! I was actually planning on charging what I was making hourly at my fulltime job, but I decided to up it by $5 after this, especially considering that I'm responsible for my own taxes.

You must make more than I do at my 9-5, then. I have to charge $20 more/hour as a VA to cover my taxes and (eventually) pay my own health insurance. I decided to start higher rather than trying to up my rates down the road.

Originally Posted by Paulette

Thanks for this! I was actually planning on charging what I was making hourly at my fulltime job, but I decided to up it by $5 after this, especially considering that I'm responsible for my own taxes.

Will $5 cover advertising, supplies, marketing, etc. plus give you a profit?