What to Charge: The Gross Earnings Formula
I don’t know why, but one question that seems to stress out a lot of newbie freelancers is how much to charge per hour for their work. One possible contributing factor is that there are so many different ways to work the numbers. In my book, that’s a good thing.
The Gross Earnings Formula is one way to do it — it’s simple, but often effective, particularly if you’re only freelancing on a part-time or periodic basis.
1. Determine what your total target earnings is (how much you want to make total at the end of the work period).
For example, let’s say you want to buy a used $3K motorcycle, so let’s make $3,000 your target earnings.
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2. Specify the period of time you have to reach your target earnings, and calculate how much you need to make per period.
Example: You want the money at the end of 4 months. This then means that you’ll need to make at least $750 a month ($3,000/4) to hit your target.
3. Figure out how many hours you have to work per period.
Example: You have 80 hours available to work each month (approximately 20 hours a week).
4. Divide your periodic $ target by the total number of hours available to you.
Example: $750/80 = $9.38 you need to make per hour.
5. Multiply your minimum hourly by 4 to cover your overhead (both time and expenses).
Example: $9.38 * 4 = $37.52
The example shows that you will need to charge $38/hour (round it up, what the hey) to hit your target in the amount of time you’ve got. External factors (like what the local market will bear) don’t come into play — just your raw financial situation in black and white.
The 4x factor in step 5… how’d I come up with that? I have no idea; I just picked that up from a few freelancers I know, have tried it, and by jove, it pans out. (Comment below, please, if you know the answer to this.)
Stay tuned… lots more posts on this topic down the road.
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