When you work for yourself or freelance for others, it’s important to know exactly how well you’re doing money-wise. The only way to do this is to take a careful look at the money you’re earning Vs. the number of hours you’re working. Once you discover the amount you’re actually getting paid per hour for a project, the decision as to whether it’s worth taking on a particular job becomes a lot easier.
Always Log and Monitor Your Hours
The best way to discover what your true hourly rate is, is to log the hours that you work on each project. Whenever you work on a specific job or project, use a timer and write down the time you spend working on that project. Be very precise and drill it down to hours and minutes. You can use the principle of time budgeting to make things easier. For example, work one hour per day on each of your projects. This makes it easier to add up the time than if you have to record segments of forty-two minutes or an hour and twenty seven minutes.
Work the Numbers
Once you have finished the project, it is time to crunch the numbers. Start by adding up all of the time you have worked. Then divide the total money earned by the number of hours you have worked. If the total time is not a clean hour, convert the hours to minutes by multiplying by sixty, then add and add the remaining minutes to this value and divide the amount by sixty to get the hours. You should now have something that looks like 4.7 hours instead of four hours and forty two minutes, making calculations easier to work with.
This type of calculation will give you your real hourly wage on the project. Be ready to be surprised, many people think they are making a great hourly rate only to discover that you could’ve done a paper round and got paid better!
What to Do with Your Data
Once you have calculated the true value of your time, you have hard data that can be used when estimating what to charge when pricing future projects as it allows you to realistically adjust your pricing. Whilst you can’t completely predict with 100% accuracy how long a project will take, using hard data will enable you to get better at estimating. You’ll then develop a better understanding of the profit margins on different types of projects.
Tips on Estimating Your Time Value
It is important to be honest when you’re calculating the time a project takes, there is no point adding up the hours when there are a few remaining small tasks to still outstanding. It is the small tasks that take up the time, do it only when everything is completely finished.
Make your time estimations more realistic by padding the hours a little. round up your partial hours, this has the effect of lowering your perceived hourly rate, but also guarantees that you’ll always make more than expected! It also allows for times when there’s a problem with the project that eats up time.
When you what you are going to charge people, make sure you have a bottom line price in place and never go below it, not even by a little. You know what you’re worth. If you decide to go against this advice and you do decide to lower it slightly, make sure you get other benefits in return, such as the guarantee of other projects, or press exposure.
Finally, remember that this is not a one off calculation; you must keep monitoring the value of your time. Things will change and you need to keep your estimation up to date. Constantly monitoring how much time you spend on each project against the amount you are actually charging is the only way to tell if you are making a genuine profit.
Till Next Time
The Time Doctor – Mike Gardner