NFIB

Consider Nonbillable Time When You Set Your Hourly Fee
02/ 26/ 2003

All small business owners (especially self-employed individuals) have nonbillable time each week when they're not working directly on jobs that can be billed to customers. In today's Workshop, Jeffrey Moses shows how to factor in this nonbillable time so that you meet your annual financial goals.

Nonbillable time includes time spent on work-related activities you can't directly bill to any particular customers: in-house bookkeeping, filing, mailing, office repair and maintenance. These necessary functions of a business often take 5 to 10 hours a week or more, eating into your yearly income, unless you factor them into your hourly rate.

Here's how to cover yourself for your nonbillable time:

1. Determine the average number of hours you spend each week on nonbillable activities. For many self-employed people this will average 10 hours a week.

2. Determine what your gross yearly income needs to be in order to meet all expenses and make a profit. In other words, figure out exactly how much you want to gross each year. As a working example, let's say that this figure is $60,000.

3. Divide this figure by 48 to determine how much you need to make each week. (You divide by 48 instead of 52 to account for vacation, sick days, etc. If you plan to take off more time than that, divide by an appropriate lesser number.) Dividing $60,000 by 48 equals $1,250 -- meaning that you need to gross this much each of the 48 weeks to achieve your target gross annual figure.

4. Now, determine how many hours you want to work each week. Most people work about 40 hours a week, but self-employed individuals frequently work slightly more than that -- about 45-50 hours. Let's use 45 hours in our example. As discussed previously, about 10 hours of those 45 hours per week are going to be spent in nonbillable activities. Therefore, you'll be working only about 35 billable hours each week. This means that you'll need to divide your target weekly gross ($1,250) by 35 to determine how much you should charge on an hourly basis to achieve your target weekly gross. Dividing $1,250 by 35 equals $35.71. This means that if you bill 35 hours each week at $35.71 per hour, you'll just about earn the $60,000 a year you need (35 hours X $35.71/hour X 48 weeks = $59,992.80.).

5. When setting your actual per-hour rate, $35.71 might sound a little odd to most customers. Instead, charge $37.50 or $40 per hour. This not only sounds more customary, it gives you a little leeway for those weeks in which you don't actually bill the full 35 hours.

Small Business Sound Off
Does this story hit home?  Share your story with us