How To Calculate Your Hourly Rate
How Much Should You Charge Per Hour As a Custom Integrator?
Getting paid what you’re worth. It’s the reason you’re in business, right? Then why is determining an hourly rate to charge for your services harder than getting an HDMI matrix to work properly on a Friday at 4:30?
The short answer is because everything depends on it! Charge too little and you’ll go broke. Charge too much, and you’ll price yourself out of business.
Many integrators pick an hourly rate out of thin air or base it on what their competition is charging. Well, what if the competition sucks at math and is winging it?
Let’s take a look at some of the things every CI should consider before you set your prices and be profitable.
Step 1: What’s Your Annual Salary?
First off, you need to work out how much you want to make per year.
If you know how much other integrators earn doing the same work, use that as a guide. But nobody can use.
Whatever salary you choose, be realistic and make sure it’s reasonable for your skills and experience.
Step 2: Calculate Your Expenses?
Next you need to know how much it costs to run your business. Write down all your expenses and work out how much they total on an annual basis.
This includes things like:
Accounting and bank charges
Office Expenses (postage, telephone, internet, office equipment)
Company car/van costs and insurance, fuel, servicing
Work clothes (shirts, jackets, boots, safety gear, etc.)
Equipment and tools
Third-party software, services and subscriptions
Website running costs
Marketing and advertising
Stationery (pens, paper, stamps, business cards)
Business insurance costs
… And anything else that costs you money every month!
If you’re just starting your business, you may have to estimate some of these expenses or ask other integrators what they pay in expenses, then use that amount in your calculations. But be warned, if you simply charge what others are charging per hr because it “sounds good”, is almost certainly a recipe for disaster. Only you can calculate your monthly expenses.
Note: A lot of the costs associated with the day to day running of your business are tax-deductible. Be sure to keep track of them throughout the year and deduct them on your taxes when possible.
Hourly Rate Calculator
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Step 3: What’s Your Profit Margin?
This is America, and you’re fully entitled to earn a profit on top of your salary and overhead expenses.
Risk Reward: Your salary a cost of running your business. Profit, however, is the reward you get for taking the risks of being in business for yourself and it provides you with money to expand if you choose to do so.
Profit is generally expressed as a percentage of total costs for each job. There is no standard profit percentage, but a 10% to 20% profit is common.
PRO TIP: Many integrators talk about profit as “ripping someone off”, it’s ridiculous. Making a profit in business isn’t a bad thing. As a business owner you should charge as much as possible, and provide an exemplary level of service. That’s the recipe for success.
Step 4: Calculate Billable Hours
How many days will you be working in a year?
There are 52 weeks in the year, keep in mind that – unless you’re a workaholoic – you will need to take time off! Also, not all of your ‘breaks’ will be planned.
There are ebbs and flows in any business. Installations may end unexpectedly and there could be periods where you struggle to find new work. It’s easy to say you’re going to bill for 40 hours per week, it’s considerably harder to do it.
Give yourself at least 20 days off – you may not take this all in the first few years of starting your business, but it’s good to err on the side of caution and not underestimate this as it will have an impact on your day/hourly rate.
Based on our example, 20 days off takes your working weeks to 48 per year which equates to 240 working days per financial year, or 1,920 billable hours.
Step 5: Calculate Your Hourly/Day Rate
Now let’s work out how much you can charge by the day and by the hour.
Use the following calculations to determine your rates:
Add your chosen salary and overhead costs together. For example: $70,000 (salary) + $20,000 (overhead expenses) = $90,000.
Multiply this total by your profit margin. For example: 10% of $90,000 = $9,000; $90,000 + $9,000 = $99,000.
Divide the total by your annual billable hours to arrive at your hourly rate: $99,000 ÷ 1,920 = $51.56. You may then want to round your hourly rate off to the nearest whole number (i.e. $52 in this case)
Finally, multiply your hourly rate by 8 to reach your day rate. For example: 52 x 8 = $416
Now you have your rates! Good Job!
But wait – it doesn’t end there…
Step 6: Do Your Research
While you’re comparing yourself to others in the industry, make sure you factor in things like experience, and the quality of service offered. You may find you are charging more than others but that you produce more value for the client. Many potential clients are willing to pay more for quality, so don’t be scared to charge more if you feel you do better work.
Step 7: Understand the Job
So you’ve worked out your rates and you’re starting to bring in customers. The next step is making sure you price each job correctly.
For every job you start, it’s super important to have a good grasp on all the work involved. This will help you to provide your client with the most accurate estimate and you’ll be less likely to hit them with an unexpected hike in price because of unforeseen extras.
Step 8: Don’t Get Stuck With Pricing That Doesn’t Work
The fact is, not everyone gets it right the first time around. Make sure you keep evaluating your approach and try not to settle on any long-term commitments until you’ve found the right mix of pricing and strategy.
As your business ages you may find that you’re in a position to offer greater value to clients. Adjust your price accordingly and if you begin to see price resistance, you will start to get a sense of what costs are acceptable for your services.