How To Compute Your Hourly Rate–And Why It Is Important To Do So

4 min read By eCompareMo on June 16, 2016

Whether you’re a regular employee or a freelancer, it’s highly recommended that you know how much you’re worth.

It’s because when you appreciate the value of every time you spend, on and off work, you won’t only make more sound decisions; you also improve the quality of your outputs and accomplish more. Find out how much an hour of your life is and turn your life around for the better.

How to compute your hourly rate

If you’re a regular employee in the Philippines, computing your hourly rate is easy. Since your salary is fixed, it’s only a matter of dividing your gross salary by the number of days you go to work.

For instance, your monthly gross salary is P25,000, and you go to work at an average of 20 days per month at 8 hours per day, your hourly rate will appear to be P156.25. While your tardiness and/or absences will be factored in your salary along with deductibles, your hourly rate will basically stay the same.

For most freelance workers, especially those who work on a per-project basis, the best way to find out your hourly rate is by dividing your contract price (including project expenses like collateral, transportation, and others) by the total number of hours you usually allot on a certain project.

Say, you make websites for a living and your minimum charge to clients is P35,000. If you can finish a project in an average of 30 hours—regardless of the number of days you spend on a project—your hourly rate will appear to be around P1,166.

Once you’ve determined your hourly pay, it is now time to see whether or not you can improve your cash flow as well as your work efficiency.

Why it matters

After you’ve some serious number crunching, what now?

In itself, getting your rate may do you nothing. But now that you have that information, you can start making adjustments to the way you see work. If you want to step up your game and become better at making money, you may want to know the following reasons why knowing your hourly rate matters.

1. Find out your time’s opportunity cost.

According to online finance resource Investopedia, “an opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action.” While mostly the application of this is on an economic scale, you can use your hourly rate to determine whether or not some activities are worth your money. Since time is valuable, some people are willing to outsource some of the things they can do not because they can but because it’s more efficient that way.

For instance, opting for lunch delivery instead of going to dine may cost you more, but it may also mean that the time you can save from going out can be used to pursue more important things. Another example is skipping a day’s work to take care of a job on the side: if the side job pays more than what you may earn on a single day, then it’s definitely worth it.

2. Increase your effective rate.

If you could finish a task in a shorter span of time and get paid the same amount, would you? While some people will either work on their job slowly or finish quickly and just basically slack off until their deadline, others will see this as an opportunity to take in more jobs to earn more.

According to digital marketing consultant Jason Swenk, people who work by the hour can easily earn more if they know their effective rate. To get this, you can divide the number of hours you work on a project by the number of hours you can actually spend. From there, you can either increase the fee you charge or squeeze in more jobs within a certain period—or both.

3. Determine if you can get more from other companies.

Let’s say that you have become efficient at your job, yet your salary isn’t—do you think it’s still worth it to stay? What if there is a company that offers bigger compensation for basically the same job? What if you will have more responsibilities?

According to Laura Woods of Demand Media: “If you choose to resign from this job, you’ll lose the promise of steady work, but may be able to find a new job offing even more benefits. The opportunity cost relative to job stability involves evaluating the benefit of having a stable job, versus the potential for a new career in an industry that might not be as stable.” And what’s one of the biggest factors to help you decide? Your hourly rate.

You tend to see your salary more in terms of their gross numbers. Unfortunately, this figure alone won’t help you make small decisions that can have a big and lasting impact in your finances, career, and life in general. Sometimes, your knowledge of the tiny details, in this case your hourly rate, can help you see the bigger picture. –Dino Mari Testa