If you’re a consultant or another type of personal service provider, you probably charge your clients for the time you spend on any given project. This makes every minute of your workday critically important, and efficiency and quality are key to your success.
Have you carefully considered how much your professional hours are worth? Here’s how to place a value on your time — and then increase it.
How Much Do You Make Right Now?
Figure out how much you’re actually earning right now. First, jot down your annual revenue. Next, make a list of every cost specifically related to your work. If some
yearly expenses are shared between work and your personal life, only include the portion (or percentage) related to your business.
These costs may include:
- Business-related meals
- Child care to allow you to work
- Office supplies
- Retirement fund contributions
- Internet connection
- Professional memberships
- Gas, mileage, and maintenance on your vehicle
Now calculate the annual cost of each of these. How many miles do you drive to work and to run business-related errands? (Use this calculator to put a value on this.) How much do you spend on food for each workday? And so on. You can use last year’s tax return to give you a leg up on some of these calculations.
It may take some work to figure out the numbers, but it’s worth the time. (Plus, you should be doing most of this for tax purposes, anyway.) Once you figure out your total expenses, subtract that figure from your annual revenue.
The final step is to break your adjusted annual revenue down to an average hourly wage: Multiply the average amount of hours worked each day by the number of days worked in a year. Divide your salary by the total hours. For example, if your adjusted earnings came out to $30,000 and you worked 2,900 hours last year, you made $10.34 per hour. (Want some help with this? Check out this calculator.)
Seem a little depressing? Maybe, but that doesn’t mean that you just found your true worth. Instead, it means that if your hourly wage is lower than you think it should be, you may not be charging enough. Or perhaps you need to take steps to lower your costs or increase your efficiency. All of these things will raise your net income.
How Much Should You Charge?
The old rule that you’re only worth what the market will pay is certainly true. But consider this: According to Elance, new job postings grew by 41 percent with freelance earnings growing 42 percent between July 2011 and January 2013.
If you’re a professional, charge professional rates. Your industry has a professional organization that tracks industry trends. The EFA, for example, provides average freelance rates for various genres of freelance writing. All industries have an organization that tracks going rates. If you can’t locate yours, try PayScale or the Bureau of Labor Statistics.
Do you know exactly how much time it takes to do your job? Draft a detailed
description of each project that itemizes your routine tasks and milestones. This not only sets proper expectations for you and your clients, but also helps you to quote projects more accurately.
What Costs Can You Cut?
If your calculations show that your hourly wage is too low,
revisit your expenditures. Even when something seems essential, ask yourself how much you use it. Could you cut back on child care? How about travel expenses or office overhead? You’re likely to find a few “money leaks”; plugging them will increase your hourly rate.
Could You Be More Productive?
Successful people who work in the service industry have a relentless obsession with time. They know that every minute is valuable. To see just how valuable, use this calculator. It will give you an approximation of how much money you lost when you took that personal phone call or checked your Facebook account instead of working on a client project.
Find ways to keep extra tasks to a minimum. Sometimes paying an assistant to handle busywork that takes up a lot of your time will result in you earning more money over time. Do you believe you’re worth $50 per hour? Hiring an assistant will cost less than that and free you up to spend your time on higher income-producing tasks.
Knowing the value of your time gives you a metric of how well you’re monetizing it. Armed with this information, you can evaluate and make changes, as appropriate.