How to calculate your hourly rate as a sole trader

As a sole trader, particularly as a consultant, tradie or freelancer, how do you determine what your hourly rate should be? And how long has it been since you reviewed your pricing? Use this simple three-step formula to help you work out the minimum hourly rate you should be charging.

Why focus on your minimum hourly rate?

Focusing on your minimum hourly rate – your floor – sounds woefully pessimistic, but it really isn’t. Most soloists who calculate their hourly rate quickly realise they’re currently charging less than the minimum they should be, and raise their prices quick-smart.

In fact, one of the top reasons sole traders don’t make a decent profit is because they are unknowingly charging less than their floor.

How to calculate your minimum hourly rate

1. How many billable hours can you expect to work in a year?

This sounds pretty simple and the quick answer is 1,920 hours, based on 48 working weeks, each 40 hours long.

But that misses the point. The average solo business owner spends about 50 per cent of their time marketing, selling, administering, learning, re-doing client work, doing client work that can’t be billed, and the list goes on. All of these are hours that don’t earn dollars – they are not billable hours.

On average, if you’re a soloist working 1,920 hours a year, it’s likely you’re working around 1,000 billable hours. If you’d like to get scientific about tracking your billable time, set up a time sheet and record the number of hours you work and where the time is going.

2. How much do you want to earn this year?

This is just about being honest with yourself. How much would you really like to earn after all the business bills are paid?

I encourage you to be bold with this because once you pop a figure into your head, it’s unlikely you’re going to exceed it. To that end, you might like to up your target by a sneaky 10 per cent.

3. Do the maths

All that’s left to be done is to divide your desired earnings (point 2 above) by your billable hours (point 1). The number you arrive at is your floor – your minimum hourly rate.

So if you want to earn $150,000 a year, and you have 1,000 hours in which to do it, you know that you simply can’t charge less than $150 per hour.

Of course, you probably don’t want to set your rate as the floor, but it gives you a good base on which to build your pricing strategy.

What else do you need to consider?

If you’d like to get more sophisticated and factor in the impact of the costs of running your business and your other commitments, try out Finder’s handy hourly rate calculator for freelancers and consultants before you set your fees.

If you’re interested in working for overseas clients or in global industries, here’s a great international calculator that outlines the current hourly rates for various industries and locations – and accounting for your experience level – around the globe.

And if you’re in consultancy, where projects can run over days, weeks, or even months, you’ll be wise to set a daily rate. Here’s a rundown of how to set a daily consultancy rate and quote for larger projects.

Article updated for 2023.

Join the soloist movement. Whether you are new to Flying Solo or looking to grow your business, our membership options will help you attract more leads, grow your network and sharpen your business skills.  Sign up to our newsletter to get the latest news and advice straight to your inbox.

Now read this:

//corestage-cdn.flyingsolo.com.au/partner-content/negotiating-rates-with-clients/