If you have a business that sells services by the hour, or you’re thinking about starting one, you need to think about how many hours you will realistically be able to bill in a year. Without knowing that, it will be impossible to accurately set your hourly service rates.
So how can you come up with a decent estimate for billable hours in a year? Here’s how to start:
First, look at the number of hours in a year – simple!
52 Weeks x 40 Hours (yeah right, how many small business owners only work 40 hours a week?!) = 2,080 Hours
Are you ever going to take a vacation? Going to work every single week of the year? Probably not. You might take a little time off or get sick once in a while. Let’s estimate that you’ll take at least two weeks off.
2 Weeks x 40 Hours = 80 Hours
2,080 – 80 = 2,000 Hours
Is every hour in your work week billable? Probably not. We’ll need to subtract at least something for time spent running your business: meeting with prospective clients, marketing, keeping your books in order and so on. Let’s guess that this takes about 10 hours per week.
50 Weeks x 10 Hours = 500 Hours
2,000 – 500 = 1,500 Hours
Next, look at the time you spend on client work. 100% of that time won’t be billable. There are always extra tasks involved that you can’t necessarily bill for, unfortunately. Let’s guesstimate that extra work takes a further 5 hours per week.
50 Weeks x 5 Hours = 250 Hours
1,500 Hours – 250 = 1,250 Hours
1,250 hours leaves us at an average of 25 billable hours per week. We can use this as a starting point for estimating total annual revenue in your services business, if all you’re doing is hourly rate work.
Say your hourly rate is going to be $100/hour, to simplify the calculation. $100 x 1,250 = $125,000 per year in total revenue.
This doesn’t look so bad, but keep in mind this is before taxes and other business expenses (some of which are deductible, and some not).
Try it Yourself
Use the embedded calculator below to put in your own figures and build your own estimate of total annual billable hours and revenue to help with your business start-up calculations.
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