How to set & forget your hourly rate
A revamp of our most popular edition. Now robot/AI-layoffs-proof.
This is the revised version of a circa 2024 newsletter on how to set your rates!
We’re bringing this edition back because 2026 is your year - the year to stop giving so many freebies*, to prepare for any eventuality where you want to, or need to, work for yourself in light of AI-powered layoffs, and to start charging for work/advice/presence, as you should be doing.
On freebies: It is good, contrary to most advice, to give out some free work. Keyword: some. More below.
In our view, everyone should have an idea of what their hourly rate is. Even if you never plan to side hustle, leave a salaried job, and/or push for paid speaking roles.
Knowing your worth is what helps you decide what to say yes (and no) to.
We’ve used this calculus to:
→ Help new contractors of ours set better rates (because, trust, some of you are still charging nowhere near enough)
→ Work with CEOs/executives/advisors decide their fees, for everything from event speaking to day/retainer consulting
→ Give friends a pep talk on how to start taking on side hustles / consulting gigs without criminally undercharging for the time
→ Decide for ourselves if a new client/project - despite the nice-sounding price-tag - was actually going to make or lose us money based on the time spend required by our team
→ Evaluate if a pro-bono opportunity (i.e., someone that can’t pay you, or can’t pay you enough) is worth doing within the other confines of your paid work
There’s many different ways to go about this, but we find this approach the fastest, and involves the least guesswork.
We begin with a salary.
How to Salary, Honestly
You can start with what you are currently earning if you think that you are fairly paid. Be brutal with yourself here, because we’re only going to add on top of this number.
If you think you are underpaid, increase this to the number you think you should be at. But again, be reasonable. You can set an impressive rate but if no one hires you for it, you’ll have to start again.
If you haven’t had a salaried position recently, go onto Glassdoor and search for the title/role you would, in another universe, go in-house for.
Example: You run high profile events for UNHWs. Look up “senior event producer” in Tier-1 cities like London and New York.
Example: You are an experienced freelance writer/content creator. Look up “Senior content manager” or “Head copywriter” - and set the location for where you get the most clients. If that’s Western Europe, for example, put Amsterdam/Madrid. If that’s Africa, put Nairobi/Accra. TL;DR: Don’t price yourself out of the market you predominantly serve. Remember, we’re adding to this number.
Example: You are an ex-VP/senior partner-level exec. Look up your job title (filtering for the right types of companies) in the size of cities you would be advising in. If in doubt, choose a major metropolitan area.
Example: You are a current or ex-CEO/founder/MD. Glassdoor may have less for you, so look up what you can find publicly about what CEOs in similar sized companies/fields are paid. Google News is a good place to start. Example here.
If your job offers bonuses (or would, if you worked in-house), factor this in as well.
What should you do if your field is criminally underpaid (i.e., journalism)?
Two options:
Take the annual salary of the next highest (or two highest) titles up, or take the salary of the “evil twin” - the job that people in your field leave for. (I.e., PR for journalism; graphic design/corporate advertising for art, etc.).
By the way, be sure to convert this salary to the currency in which you’ll be charging (i.e., USD to EUR. The exchange rate adds up).
We now have this:
Calculation: Annual salaryWe use annual salary to offset against the criticisms of hourly rates - i.e., you shouldn’t be punished if you can do work quickly & well based on your years of experience. Those critics are right; you should get paid for the years of expertise and skill that make you efficient and effective at the task at hand; and we’ve found that salaries equivalent with experience are a fast and easy way to approximate this.
Then: Build-a-Business
That salary figure is paid to you by a (possibly hypothetical) employer, but there are many other costs they incur to have you on staff. For this exercise, you are the solo-person, self-sustaining business, so you have to factor in these costs.
By the way, you are adding these regardless if they are already covered (i.e., you already have a laptop, you do your own taxes, etc.) - because that’s how we get to your cost of doing business.
At a minimum, you should add to your annual salary number:
20-30% for taxes (to factor in what you yourself pay in taxes, and the payroll taxes your employer pays for you)
The cost to file your taxes annually (say, $500 - $1,000)
The annual spend on your technology (i.e., a laptop and a phone, phone service, internet)
The annual cost for subscriptions you need to deliver your expertise (Canva, Adobe Creative Suite, Google Workspace, Capcut, etc.). If you know you would need to drive or travel for this job, you can add that here too.
If you live somewhere where your healthcare is tied to your job, add the cost of your policy, too (or the cost of having an independent policy - estimates are fine).
Any other insurances you have, or would like to have. We hold liability insurance, cyber insurance, legal insurance, clients-that-stop-paying insurance, etc. Only a lawyer / insurance broker can tell you what’s best for you, but definitely don’t forget to charge for this. You will want it if you start getting more clients or working for yourself full-time.
Should you add these costs even if you’re just pricing out for small side projects, and have a salaried job already? Short answer: Yes, because the idea here is that for someone to hire you, the hourly rate you quote would be enough for you to do this full time. Even if you never do that.
We now have:
Calculation: ((Annual salary)*1.3) + (Filing taxes cost) + (Technology cost) + (Subscriptions/services cost) + (Healthcare cost if applicable) + (Annual cost of insurances)Then: Pay Yourself for Days Off
There’s one other hidden cost to being a salaried employee that we need to factor in here, and that’s time off. When you take holidays or sick days, you don’t stop being paid your salary (we hope). The company takes on the cost of you being out of the office.
This must be the same when you work for yourself. Obviously, a client won’t pay for you to take a vacation, so, you need to pay yourself enough on the days you do work so you can!
It is up to you how many working days/weeks/months you’d like to set aside, but we recommend at least 1 month of holiday and 1 month of sick time, just in case. That’s 2 months, or 17% of a year (more or less).
So you’re going to want to multiple your growing salary number by 117% (1.17) so as to make sure you can charge across the year enough to take two months without any paid work.
Calculation: [((Annual salary)*1.3, for taxes) + (Filing taxes cost) + (Technology cost) + (Subscriptions/services/transit cost) + (Healthcare cost if applicable) + (Annual cost of insurances)] * 1.17 (for 17% of the year off)Then: Take “Working On the Business Time” Off the Table
When you work for yourself, you aren’t doing 100% billable to client work the whole week. Some of the time, you’re checking email, making invoices, sending reports, talking to your bookkeeper about receipts, etc. Other times, you’re doing new business calls, following up with client leads, posting on social media to find new ones, etc.
All this time can’t be billed back to clients - you’re welcome to try! - so it’s what we call “working on the business” time, vs. “working in the business time” which would be client billable work.
A good rule of thumb: Assume that at least 1 day a week, you’re doing “business management” work, not billable work. So you don’t really have a 5 day working week, you have a 4 day working week.
With that, we aren’t going to add anything to the calculation here. Instead, we’re going to use it in the next step.
Then: Reduce To Your Daily or Hourly Rate
We have our annual salary calculation:
Calculation: [((Annual salary)*1.3, for taxes) + (Filing taxes cost) + (Technology cost) + (Subscriptions/services/transit cost) + (Healthcare cost if applicable) + (Annual cost of insurances)] * 1.17 (for 17% of the year off)And we have the amount of days we want to work per week on average:
Divide: 4 days per week billableNow we can get to our hourly rate.
Take the annual salary, and divide it by 52 weeks a year (we do this because we’ve already factored in some of these weeks in our cost as being non-working weeks).
Divide: Annual salary figure / 52 weeksThat’s how much we want to earn per week. What does that mean for how much we need to earn per day?
Divide: (Annual salary figure / 52 weeks) / 4 work daysAnd from there, how many hours a day you would feasibly work (we recommend doing 6-8 here):
Divide: [(Annual salary figure / 52 weeks) / 4 work days]/ 6 work hoursAnd there we go - there’s your hourly rate!
Here’s an example of what this looks like for a SVP/VP-level executive offering advisory services in a Tier-1 city:
200,000 euros annual salary and bonuses * 1.3 (for payroll taxes) = 260,000
Annual cost of filing taxes: 1,000 EUR
Annual technology cost: 3,000 EUR
Subscriptions/services/transit cost: 5,000 EUR
Healthcare cost: 200 EUR
Insurances cost: 1000 EUR
Total so far: 270,200
Multiplied by 1.17 to factor in 2 months off: 316,134 EUR
Divided by 52 weeks a year: 6079.50 EUR
Divided by 4 days a week: 1519.88 EUR
Divided by 6 hours a day: 253.31 EURUsing this Rate
Now that you have this rate, how do you use it?
→ As a contractor or someone starting a side hustle, you can either quote it as is, multiply into a day rate, or use it to develop project/deliverable rates (number of hours you need x this rate)
→ To decide your cost to speak at an event: The number of working hours you will be dedicating to this (travel hours there, actual hours at the conference, travel hours home) x (hourly rate). Then, add on the costs of your travel (flights, taxi, per diem). Keep in mind that most conferences don’t pay their speakers, minus keynotes/people that can drive ticket sales. Until you have a lot of speaking under your belt + lots of public wins, the idea is that you speak for free for the publicity. 🤷♀️
→ To advise companies/people/projects, multiply the number of hours you think you’ll need by this rate. (We recommend padding this/being generous to account for time answering messages, unexpected calls, etc - or put in a clause that says all meetings are billed regardless). If you’re going to need to bring on multiple people, be sure to factor in their hours and hourly rate (if it is more than yours - hopefully, it isn’t!)
→ If you’ve been offered an opportunity already, take that figure and divide it by the (generous) number of hours it will require, then compare against your hourly rate. (Then - negotiate!)
*On Freebies
The best way to know if your hourly rate is working is if you’re signing business at that cost. If you are spending all your time trying to win clients and losing out at the final stages, you need to do this calculus again.
The other approach, and one that’s worked for us in keeping some of our clients for 3+ years, is to give some complimentary time (freebies) in some form or fashion.
This can look like:
Doing a few extra hours without billing extra - making your effective hourly rate lower. Be sure to call this out in your reporting, though, so they know!
Keeping your hourly rate at the medium/low end of the spectrum. This means that for every hour you work, you may be slightly undercharging. However, over the long term, you’ll earn much more from that client because they work with you for 12+ months vs. 3 months. And, bonus, you’ll have an easier time signing new business, too.
Offering free hours in the form of referrals - so anyone that works with you, while paying your full rate, can earn more of your time “for free” by making introductions.
Being generous with the number of hours you expect something to take - like advising/consulting/speaking - and then cutting them by a percent if they pay in full upfront so you spend less time making invoices, etc.
Why do this? Because people love getting a deal, and you secure much more business for yourself for years to come (which means less ‘free time’ spent on new business calls and more time getting paid).
❗Important: Either do work at your hourly rate, or do it for free. Don’t offer discounts on your hourly rate. It is your value, and you don’t want to give off the impression that you are already, possibly, not worth the cost. Giving a few hours of your (valuable) time > giving someone the feeling you’re overcharging.
If you’re not sure if this calculus works for you… leave a comment with your job role / what you need an hourly rate for! We love a challenge. 💜