Now that you have figured out what your costs will be, you can begin determining what you will charge. There are a couple of approaches to consider.
As a business owner, you will have many responsibilities in operating your business. You therefore will not be able to devote full time efforts exclusively to hours you can bill to your clients. You must leave some time free to handle administrative tasks, banking, networking, marketing and selling activities. You must also allocate time off (vacations, etc.) or you'll burn out. After dealing with all of these activities, expect to have approximately 50-60% of a normal workweek available for billable hours. At the beginning as you are building your business, it may be even less than that. Based on a 40-hour workweek, you will have 20 - 24 hours that you can actually bill clients.
Let's say your total minimum monthly living expenses are $5,000 and your business expenses are $1,500 making your total expenses $6,500 ($78,000/year). Assuming you can bill approximately 22 hours each week for 50 weeks during the year, your hourly rate would be about $71/hour.
22 hours/week
X 50 workweeks/yr
1100 hours/year
$78,000 / 1100 hours = $70.90/hour
This assumes that you are booked and working on projects every week (except two vacation weeks). In reality, this may not happen especially at the beginning or in times of economic downturn. This hourly rate is the minimum you need to break even. You may elect to adjust your rate based on current market conditions or competitive pricing strategies.
As in job seeking, it's important to know what the market value of your skills is. Talk to other people in the industry with comparable skills and experience and find out what they have been able to charge. If you over-price your services, you may knock yourself out of the competition. If you under-price them, you'll be selling yourself short and missing out on potential profit.
Many professional associations conduct salary surveys. These may be invaluable in understanding the pricing issues that are relevant to you and the industry.
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