Thank you on behalf of the industry for considering your non-billable hours! Non-billable hours refers to the time you spend at work engaged in non-money making activities. These could include everything from creating marketing material, responding to emails to sweeping the floor! When you spend time on activities that don’t directly make money, you still need to get compensated for your time. Remember, Everyone else gets paid to work!
So how do you get compensated? Well, the simple answer is that you need to include your non-billable time in the hourly rate you charge your clients.
But how do you figure that out?
Let’s see if we can help.
The first step is working out your annual cost of doing business. Let’s say it’s $100,000. This includes your owners’ compensation, taxes and all expenses.
Then you’re going to ask yourself how many hours a week you realistically work. Let’s say 32 hours.
Next, ask yourself how many weeks vacation you’d like to take. I’d like 6…but 4 is probably more realistic.
So now you can multiply the numbers of weeks you’ll work (48) by the number of hours (32) and get 1536.
Now you know that in one year, you’re going to work 1536 hours.
Still with us?
Then you take that $100,000 and divide it by those 1536 hours you’re going to work…which gives you an hourly rate of:
But hang on…we’re not done. You see – that $65.10 only counts if you’re actually generating income for every one of those 1536 hours. And we know that’s not the case. So what next?
Well, you need to estimate your own “admin” to “money-making” hourly ratio in your business. Julia Woods suggests that your ratio should be 1 to 2. In other words, for everyone one hour you spend on admin and marketing your business, you would be spending 2 hours makin’ the money. At first, this might seem like a high admin ratio…but remember, the most successful business people learn to work “on” their business – not “in” their business.
So, now we know that for every two hours you are engaged in money making activity (photographing things, people, places) – you have to make up for that one hour that you can’t bill for. Again, because this is a 1:2 ratio, your own personal hourly rate ends up being $97.65.
How did we get that? Here’s the formula:
total number of hours in your ratio (3) x the hourly rate ($65.10) divided by the number of hours you actually bill out in your ratio (2)
$195.30/2 = $97.65
Congratulations, you have just figured out one of the most valuable numbers in your business! Now you can start to work on how to incorporate this number into your physical product line, the fees you charge for image licensing(digital files) and your session fees. Yipeeeeee!