ESTIMATE YOUR BILLABLE HOURS
The next step involves estimating how many billable hours you might be able to produce during the year. No matter how diligent you are, you can’t be billable every waking moment. Out of a full-time work schedule, most designers range between 50 and 80 percent billable. Here’s a format for estimating your potential for billable hours:

FULL TIME SCHEDULE	52 WEEKS	X	40 HOURS	2,080	100%
LESS
» VACATION	3 WEEKS	X	40 HOURS	-120	-5%
» SICK	8 DAYS	X	8 HOURS	-64	-3%
» HOLIDAYS	10 DAYS	X	8 HOURS	-80	-4%
» NEW BUSINESS DEVELOPMENT	50 WEEKS	X	14 HOURS	-700	-34%
___________________________________________________________
» TOTAL BILLABLE HOURS AVAILABLE				1,116	54%

Why is this example on the low end of the scale? In a large firm, staff designers have the potential to produce lots of billable hours because other employees are there to take care of nonbillable tasks such as marketing. As an entrepreneur, however, you’ll be doing everything yourself. New business development activities may take up a significant portion of your time, particularly when you are first starting out.

KNOW YOUR BREAK-EVEN RATE
At this point in the process, you know how much money is needed each year to keep your business afloat and you know how many hours are available to produce that money. The next step is simply to divide the total expenses by the total billable hours available. This gives you a break-even rate, meaning that you have to charge at least that much per hour in order to keep the doors open.

BUMP IT UP TO A BILLING RATE
However, you want your business to do more than just break even—you want it to produce a profit. To make sure that happens, you must decide on a target profit margin and build that margin into your billing rate. This is an important management decision for you. The typical profit margin varies by design discipline, but it is usually somewhere between 10 and 20 percent.

LOOK FOR INDUSTRY COMPARISONS
Now that you’ve calculated your personal billing rate, compare it to the rates that other freelancers use for similar work. Ask around within your community and check for recent surveys. A junior production specialist may bill for as little as $35 an hour, while a creative director may bill for $75 or more per hour, so it’s important to find comparative information that is a close match to your own skills. Most advertising agencies and design firms use lots of different freelancers. This means that they know what the typical rates are, although in conversations with you they may be tempted to understate them a bit as a negotiating strategy. If you are asking to be paid more than the going rate, you will need to explain why that is appropriate.

STAY COMPETITIVE
You may want to adjust your own billing rate in response to the industry comparisons that you have found, but you should never sell your services at less than your break-even rate. If you are a freelancer with modest expenses but a high number of billable hours, then you may have the luxury of adjusting your billing rate upward. However, if you find that you need to adjust your rate downward in order to be competitive, then you need to go back over your calculations very carefully. As a businessperson, you must find ways to cut costs and/or increase your billable hours. You might also consider lowering your target profit margin, but you should never eliminate it altogether.

Finally, you should keep in mind that calculating an hourly rate is not a one-time process. You need to update your rate periodically because costs change, your skills change, and overall client demand changes. It’s a good idea to recalculate your standard rate once or twice each year to make sure it remains as current and competitive as possible.