From Jennifer Kyrnin,
Your Guide to Web Design / HTML.
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Determining Number of Projects

In order to determine your pricing structure, you need to make an estimate as to how many projects you think you'll get over one year. This estimate should be based on as much actual data as you have. Make the estimate based on your current resources. For example, if you currently do not have a Perl programmer, do not estimate that you'll get one and so be able to take on 4 additional projects in one year.

A good rule of thumb in estimating the number of projects you can handle is to make an estimate of the length of time of the typical project. Divide that into 50 (the number of weeks in a business year). Then subtract 10-20%, as things come up that will make projects take longer or shorter. For example:

• Typical project length = 3 weeks or 120 hours
• Total projects per year = 16 (always round down - to be conservative)

Determining Billable Hours

Billable hours are the number of hours in a work year that you are actually billing to clients. This means you are working on a project, have a contract, and will be getting your hourly rate for the time. To determine the number of billable hours, you need to know the following:

• Total annual work hours - usually 40 hours per week times 50 weeks per year, or 2,000.
  Note that the year actually has 52 weeks in it, but most businesses consider 2 weeks lost due to vacation, sick time, or no work.
• Total annual non-productive hours - Usually between 20 and 40%. For a new business it will be closer to the 40% range. For this example, I'll assume 40% or 800 hours.

Billable hours = Annual work hours - non-productive hours = 2,000 - 800 = 1,200 hours

Determining Earnings

To determine what you need to earn to cover your salary, your expenses, and your desired profit, simply add them all together. If you work alone, and make $50,000, your expenses are $25,000, and you want to make 20% profit, your earnings would need to be:

Earnings = Salary + Expenses + Profit
$50,000 + $25,000 = $75,000
Profit = $75,000 * 20% = 15,000
Earnings = $75,000 + $15,000 = $90,000

Putting it All Together for One Price

When you are determining the price for a project, you can bill by the project or by the hour. For projects that entail special work on your part, are rush jobs, or add extra details, you should either tack on extra charges or bill by the project, with that extra cost built-in.

To Bill By the Hour
Simply divide your earnings by your billable hours: $90,000 / 1,200 = $75
Your hourly rate would be $75.

To Bill By the Project
Simply divide your earnings by the average number of projects per year. Then add any additional fees for special requests: $90,000 / 16 + 0 = $5,625
Your per project rate would be $5,625 - for a 3 week project with no special requests.