How to calculate your hourly rate + infographic
Charging for your time can be a challenge, so here is a handy guide for calculating your hourly rate.
→ Choose your target annual salary.
This might sound as easy as just picking a number but the more you think about it, the trickier it can get. Be honest with yourself and keep your expertise in mind.
→ Calculate expenses and overhead.
Work out your costs of doing business, such as teaching materials, calendar management software, travel expenses, web hosting, internet connectivity, mobile phone, computer equipment, marketing, accounting, taxes and more. Include anything and everything that is an expense to you as a result of being self-employed.
→ Adjust your target annual salary.
Add your expenses to your target annual salary.
→ Determine your number of billable hours per year.
In other words, estimate the total number of hours you work per year. There are 365 days per year. Subtract any days that you don’t work (such as weekends, annual leave, sick days and public holidays) then multiply that number by the average number of hours you work per day.
→ Calculate your percentage of non-billable hours.
Estimate how many hours per week you will spend on non-billable activities and convert this to a percentage. Such activities include scheduling lessons, preparing for lessons, travelling, admin, answering calls and emails, updating your website, advertising, invoicing, collecting payments and more. We suggest calculating this on a weekly basis because some days might involve more non-billable activities than others.
→ Calculate your final number of billable hours per year.
Using the non-billable hours percentage, determine your number of non-billable hours per year. Minus your non-billable hours from your original billable hours to calculate your final number of billable hours. This ensures that you get paid for all of your working hours, even when you aren’t physically tutoring.
→ Calculate your hourly rate.
Divide your (adjusted) target annual salary by your final number of billable hours to calculate your hourly rate.
Here is an example:
Target annual salary
$7000 per month x 12 = $84 000 per year
Expenses and overhead
(estimated for easier explanation)
Teaching materials = $200 per year
Software & apps = $150 per year
Travel expenses = $1 000 per year
Web hosting = $300 per year
Internet connectivity = $1 000 per year
Business phone = $1 000 per year
Computer equipment = $500 per year
Marketing = $600 per year
Accountant = $1 000 per year
Taxes = $10 000 per year
Total = $15 750
Adjusted target annual salary
$84 000 + $15 750 = $99 750
Lets say you work Monday – Saturday every week.
6 working days every week x 52 weeks = 312 possible working days.
However, you usually have a 3 week vacation (18 possible workings days), an average of 5 sick days a year (5 possible working days) and you don’t work on 6 of the public holidays (6 possible working days), that’s 29 non-working days. 312 possible working days – 29 non-working days = 283 working days. If your average working day is 8 hours, then your number of billable hours per year is 2 264 (283 x 8).
Lets say you dedicate 2 hours per day on non-billable activities.
2 non-billable hours per day x 6 days per week = 12 non-billable hours per week.
8 working hours per day x 6 days a week = 48 working hours per week.
12 hours out of 48 hours per week are spent on non-billable activities.
Lets convert that to a percentage: 12 ÷ 48 x 100 = 25%
Final billable hours
25% of 2 264 = 566 non-billable hours.
2 264 – 566 = 1 698 total billable hours per year.
$99 750 ÷ 1 698 = $58.75/h which can be rounded off however you like.
This can be summarized as follows:
$ adjusted annual salary ÷ final billable hours
= $ per hour
It is helpful if you do all of these calculations twice – one for the minimum salary you need and then a higher, more ideal salary. You can then use use your initiative to set your hourly rate somewhere in between and work your way up to the higher ideal salary.
Hourly rates for tutoring will vary according to expertise, subject matter, reputation, location, demand and several other factors. Charging for your time is not generally something that you magically get right from the very beginning – it comes with experience.