Most freelancers can only tell you how much revenue they made. But when it comes to understanding their profits, their eyes glaze over. So I created this guide to show you how to keep track of your profitability as a freelancer.
Too many freelancers have NO idea how profitable their businesses actually are.
Sure, they can tell you how much revenue they made…
But almost none of them have any idea how to calculate their costs.
And without knowing your costs, you also have no idea what your profits are.
So if you’re ready to see how to calculate your freelance profits like a pro, take a deep breath…
Because I’m going to show you how I do that right now.
It Starts By Setting A Rate That I “Charge” My Business For My Time As The Person Doing The Work
(Just like I would have to pay someone else if I hired them to work for me.)
I call that my “billable rate.”
This year, that number is $243 per hour.
And the way I came up with that number is important…
I started by looking at how much time I wanted to work this year — which is 1,100 hours.
From there, I know I spend about 25% of my time on non-client work — like doing my taxes, keeping my books, pitching potential clients, etc.
So if I work 1,100 hours this year, it means 275 hours (or 25%) will go to non-client work.
And I only have 825 hours left over to spend on client projects.
Which means in order to reach my income goal of $200,000 for the year, I would need to bill clients an average of $243 per hour.
So that’s the number I set as my “billable rate” for the year.
Now If You Want Figure Out Your Own Billable Rate, Here’s How To Do It…
- [Total Hours] x [Non-Billable %] = [Non-Billable Hours]
- [Total Hours] – [Non-Billable Hours] = [Available Client Hours]
- [Annual Income Goal] / [Available Client Hours] = [Billable Rate]
And here’s how the numbers work out from my example:
- 1,100 Total Hours x 25% Non-Billable = 275 Non-Billable Hours
- 1,100 Total Hours – 275 Non-Billable = 825 Available Client Hours
- $200,000 Goal / 825 Available Client Hours = $243/Hour Billable Rate
Also, To Be Clear, This Is Math I’m Doing For Myself Behind The Scenes
I am not sharing this with clients or charging them by the hour.
But as a freelancer, your time is your biggest expense.
Which means you need to be keeping an eye on it if you want to know how profitable you are.
Now if your eyes just glazed over, don’t worry…
The key takeaway is that I charge my business $243 for every hour I work on a client project.
Once I Have My Billable Rate, I Can Figure Out How “Profitable” A Specific Project Is For Me
Here’s how it works…
I start by determining my “labor costs” for the project.
I do that by taking my billable rate and multiplying it by the hours I spent on the project.
So if my billable rate is $243…
And I spend 10 hours on a project…
My labor costs for that project would be $2,430 of my time.
Then once I have my labor costs, I can figure out my profit by subtracting my costs from how much income I made for the project.
(Assuming it’s a positive number. If it’s negative, then it’s how much I “lost” for the project compared to the numbers I would need to hit to reach my goals.)
So if a project took me 10 hours to complete…
That means my labor costs would be $2,430.
And if I earned $3,000 in revenue for a project…
Then my profits would be $570. ($3,000 minus $2,430).
The profit is how much I made as the “business owner” in my freelance business.
Plus I also earned $2,430 as the person providing the labor, too.
And using that number I can compare all my projects for the year to see which ones are the most profitable — and where I “lost money.”
Then I can try to figure out how to do more of the projects that make me the most money — and less of the projects where I lost money.
And speaking of making more money as a freelancer…
Now Let Me Show You How To Make Freelance Clients Come To You — Like Clockwork — Using A Simple, 30-Second Conversation…
All the details are inside my free business blueprint 30-Second Referrals.
With this free PDF, you’ll discover how to use a simple, 30-second conversation to get two referrals from every single client you sign. (I’ll even show you exactly what to say during this conversation with my word-for-word script on page 13.)
That way, you can make clients come to you like clockwork. And you can fill your pipeline with more new business than you can handle.
But there is a small catch…
30-Second Referrals is only available to members The Freelance Like A Pro email list.
So enter your best real email below to join us and claim your free copy of 30-Second Referrals now. (And you’ll get my members-only emails to help you run a more profitable and stress-free freelance business, too.)
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Thanks for the freelancing guide and the emails that you've been sending out — the 30-second referral method is so stupidly simple, that it's genius!Connor Inch, Freelance Copywriter