What’s Your Time Worth?

It’s hardly surprising to find there are now around one million people contracting out their professional services in Australia. After all, they get to choose their hours, their place of work, how they want to work and how much they get paid… or do they?

One of the trickiest decisions to make as a contractor is how to charge for your services. Do you charge per project and hope it doesn’t drag out as a result of the client’s unanticipated expectations? Do you charge an hourly rate, but risk not getting the job because neither you or the client really know how many hours it will take? Do you charge a retainer for a set number of hours a month and roll any unused hours into the next, or take time in lieu when you’ve worked more than agreed in previous weeks?

Either way, how much do you need to walk away with to make it worth your investment in time, your expertise, the opportunity cost of not picking up another job, and the risk?

One way to begin considering how much you want to achieve is to reflect on what you were earning per year in a regular, paid job. Then divide it by the number of days you worked per year and then the number of hours per day.

On top of that, consider the costs you need to cover that wouldn’t have applied had you remained in paid employment. These will include:

  • The annual costs of maintaining a registered business,
  • Annual accounting, book keeping and any other administrative fees,
  • Any insurances you need to take out to protect yourself and the work you do,
  • Any investment in technology and equipment required to do your work,
  • Your rent and day to day costs associated with running a business (phone, internet, power etc), and
  • Any investment in training, advertising and promotion to attract jobs.

On top of these costs, you need to add a premium to cover the down time you’ll have between jobs. This is particularly the case if you’re working for clients for a few hours at a time as opposed to providing them with regular days of work. Consider for example, working for a client for four hours in one day – what are the chances of picking up the extra three hours work with another client to make up your full day? Or if a client wants you for four days a week for three weeks in the month – how likely are you to fill the extra day a week, or indeed, the final week of the month?

A great way to consider how much you need to charge per day is to use the consulting calculator here.

Another suggestion is to simply add a 40% premium to the amount of money you would have been paid per day as an employee. Charge 75% of your daily rate to work a full day and 30% of your half day rate to work an hour.

If you’re charging on a retainer or project-basis, calculate the hours you expect the job will take then quote in the same manner. But be sure to add a caveat in case the job spirals out of control. If you see that happening, advise the client, provide a revised quotation and seek approval before the costs start to escalate.

No matter how much you decide to invoice or how you structure your project payments, be sure to invoice on time and follow up payments due with diligence. One of the fastest ways to go out of business is to lose track of your billing!

Ayers can advise you to charge out your time and we’ve tailored systems to manage invoicing, taxation obligations and more. Talk to an Ayers consultant today.