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Having a clear understanding of what an hour of your time is worth can greatly influence your ability to make informed decisions that lead to good project bids. It might also have a profound impact on other decisions in life. Before we can really evaluate our dynamic costs, we need to know what the cost of our own time is worth.

Total Cost of Ownership (TCO) starts with each individual. Sure there’s a TCO for the person or company that will own the finished website, but there’s also a TCO for the people creating the site, and that starts with the value we place on an hour of our own time.

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Another excellent article. It reminds me of 2 things:

1. I once read on Derek Allard’s blog a great calculation to decide what your hour-rate could be. Here it is:
Decide what you want to make on a year’s basis. Divide it by 2000 and multiply that number with 1.5. So if you take a look at your example: ($100.000,- / 2000) x 1.5 = $75,- per hour. A bit lower than your $100,- but that’s probably because in your calculation you have quite some spare time.

2. I read a story once about people who were to busy to spend their saturday-afternoon with their kids playing soccer. They were asked how much that would be worth to them. In the end it was an hour rate of (let’s say) $25,-. If they would spend that money on having someone to fix their bike, or clean their house they could spend that time with their children and at the same time have a more relaxing life. Your story seems to be quite similar for a business environment.

If you are self-employed (and live in the US), I’d recommend factoring in the extra tax burden. 100k salary as an employee of a company is a good bit more than 100k as a self-employed person.

Great book on the subject called the Million Dollar Consultant:
http://www.summitconsulting.com/scg5.html

I learned a lot from this way back before the internet was big. Among the words of wisdom are that there is almost NO hourly rate that would be high enough to really create financial independence in the consulting business. When all the down time, free time, vacations, sick time, etc. is figured in, you would almost never get ahead. Rather you should always attempt to do jobs by the project - because if you offer a value your customer will go for it.

Example: If I am an energy consultant, I come into your factory and say “I’ll get things right for $200 an hour” and you might flinch. But If I said “I can lower your monthly energy bill by $3,000 per month with our program for a one time charge of $12,000”, well - heck, you would be happy with a 4 month payback and then savings forevermore.

My business is web publishing and content, but maybe only 1/20 of it is by the hour. The rest is mostly advertising which I run on my site (which is mostly yearly based).....so that is more like a “project”. It might only take one hour of my time to renew an advertisement for $1500. Of course, it takes “free” time to create content and framework etc, but life is much better not billed by the hour.

I found your article very helpful Kurt, because it gave specific figures and related to a real-life scenario, thank you.