Many self-employed people set their hourly rate by copying what the competition charges or going on a general feeling, without actually working out how much they need to charge for the business to be truly profitable.
Subtract the non-billable hours
From the total hours worked each month, you must subtract the time spent quoting, buying materials, travelling, handling admin and training, which isn't billed directly to the client but uses up real time. In many trades, the truly billable hours are well below the total hours worked.
Add up all the business's fixed costs
Self-employed social security, public liability insurance, vehicle, tools, accountant and any recurring business expense must be spread over the real billable hours, not diluted as though they didn't exist when setting the rate.
The basic formula
Adding up monthly fixed costs and the desired profit, and dividing the total by the real billable hours (not the total hours worked), gives an hourly rate far more realistic than the one many self-employed people apply by intuition, and which often turns out higher than what they had been charging.
Review the rate at least once a year
Costs rise over time (inflation, material prices, fees), and not reviewing the rate regularly makes the real margin shrink little by little without the professional consciously noticing.
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