Set Your Contractor Rate from a Salary Number
Turn a salary target into a sustainable contracting rate with time off and overhead accounted for.
1) Target total
Start with a full-time salary you’d accept and add benefits you’d otherwise lose.
2) Billable hours
Subtract vacation, holidays, admin, prospecting; many contractors use 1,600–1,800 hours.
3) Overhead
- Software, accounting, legal, insurance
- Self-employment taxes
4) Rate
Rate = (Target total + overhead) ÷ billable hours. Example: ($96k + $9k) ÷ 1,700 → $61.76/hr.
Rate tiers
Quote a standard rate and a rush/after-hours rate. Include minimum blocks (e.g., 2 hours) to cover context-switch costs.
Review cadence
Revisit rates semi-annually as demand and scope change. Track utilization to validate your billable-hour assumptions.
Proposal structure
- Scope & outcomes
- Rate (standard/rush) and minimum blocks
- Payment terms and late fees
Utilization tracker
Track billable vs total hours weekly. If utilization drifts below plan, re‑estimate your rate or marketing time.
Retainer vs hourly
Consider retainers for ongoing work to stabilize income and reduce context switching. Price retainers at a slight discount with a clear scope of work.
Invoice hygiene
- Send invoices on a consistent cadence with PO/reference IDs
- Late fees and payment terms stated up front
- Offer ACH to cut processing delays and fees
Scope control
Use change orders for out-of-scope requests. Keep a running log to prevent scope creep from eroding effective hourly rate.
Qualification script
“To make sure I’m a fit: what outcomes, timeline, and budget range are you targeting?” Qualify early to protect utilization.
Rate review cadence
Re‑estimate annually against inflation, demand, and specialization. If you’re consistently booked out, raise rates or move to retained packages.
Collections playbook
- Clear SOW and PO requirements
- Net terms and late‑fee policy in contract
- Automated reminders before and after due date
Client-fit scoring
Score leads across scope clarity, decision makers, budget fit, and timeline. Decline low-fit projects to protect utilization and margin.
Repricing triggers
- Consistent waitlist/backlog
- Scope complexity increase
- Inflation or tooling cost jumps
Exit criteria
Define conditions to sunset a client (e.g., repeated late payments or scope churn) and move capacity to better-fit work.