How to Estimate the Value of Your Time
Whether you’re working for yourself or freelancing, it’s hard to tell exactly how well you’re doing money-wise without taking a careful look at the money you’re earning vs. the number of hours you’re working. It’s particularly tough to determine how much to charge so that you get the hourly rate you want. When you discover how much you’re actually getting paid per hour for a project, you can then decide if it’s worth taking on a particular job or whether it’s something you should pass on.
Logging Your Hours
The best way to discover your true hourly rate is to log your hours working on each project. Whenever you’re working on a specific job, use a timer and write down the number of hours and minutes you spend. Time budgeting makes it even easier. For example, work one hour per day on each project. This makes adding up the time much easier than if you work in irregular chunks of forty-two minutes or an hour and thirty-two minutes.
Do the Math
When the job is finished and there’s nothing left to do, add up all of the time you worked. Divide the total money earned by the number of hours worked. If the total time is not a clean hour, take the hours times sixty, and add the remaining minutes to this value. Divide this number back by sixty to get the hours. You’ll now have something like 5.6 instead of five hours and thirty-six minutes. This makes it much easier to do the math.
By doing this type of calculation you’ll find out your real hourly wage on the project. Often, it is a complete surprise. You may think you were making a great hourly rate only to discover that you could’ve taken cans to the recycling center for a better hourly wage!
What to Do with Your Data
When you calculate the value of your time, you give yourself hard data that you can use to estimate the value of future projects. You can then adjust your pricing more realistically. While it’s impossible to completely predict with accuracy how long a job is going to take, when you log your time and make these calculations, you’ll get better at estimating. You’ll then develop a sense of how much you can make on different types of projects.
Use this data to decide whether to pass on future projects that offer you too low an hourly rate, or to seek higher paying work with the same client. You can also use this information to streamline your work to make it more worthwhile.
Tips on Estimating Your Time Value
When you’re calculating the time a project takes, you need to be honest and take everything into account. Don’t tally up the hours when you still have a few remaining small tasks to do. Wait until everything is completely finished.
You can also make your estimations more realistic by padding the hours a little. For example, round up your partial hours. This lowers your perceived hourly wage but guarantees that you’ll always make more than expected! It also allows for times when there’s a snag or roadblock in a project that eats up time.
When you choose the hourly rate to charge people, pick an absolute minimum and stick to it. Never go below it even by a little. You owe it to yourself to make what you’re worth. That being said, you may decide to lower it slightly when there are other benefits involved in the project, such as exposure or a good portfolio item.
Finally, once you arrive at a realistic estimate of the value of your time, keep monitoring as much as possible. Things will change and you need to keep your estimation up to date. Monitoring is the only way to know exactly how much you’re making per hour.