Methods of deciding on a day rate / hourly rate

This question is not asking "what should my rate be?"

I would like to some help understanding how to choose a rate. What are some successful methods that others have used in deciding what to charge in terms of time-based work?

My business is early on in the startup phase, and the first method that I used for consultancy-based work is by deciding on an annual salary I'd be happy with - let's say £20,000 to keep it a round number - and dividing this by the number of days per year (let's say 250 working days days, then multiplying by the number of days work required to complete it, and then adding 20% - giving a rate of £100 per day. I thought the 20% was a clever way of getting more money from what I put in, but in reality I don't think I'm asking for enough.

The reason I've found myself feeling out-of-pocket is because, as I'm sure most of you on this website know all too well, there is a lot of time spent when setting up a business on things that don't directly earn you money. That, and the fact that it is very difficult to maintain solid work all the time means that the 20% figure becomes very insignificant.

Luckily, most jobs that I have done are one-off pieces of work, so I'm not going to have to negotiate with existing clients on a price increase, but I have realised that one-off jobs can have a much higher asking price... but how high is reasonable, and how can I calculate this?

In case this helps your answer, the business is software and networking, mainly consultation & bespoke software development.

Here are things to consider and I'll stick to your annual salary concept:

1. Estimate the number of billable hours. Whatever you think it is, deduct 30% your first year.
2. Costs. Think about everything. Don't forget payroll, retirement and all those hidden payments full-time employers have to make.
3. Your competition. You may be leaving money on the table or pricing yourself out of work.
4. How your customers perceive your value? Do they expect to call at the last minute or have you do work when they are shut-down (holidays, weekends, nights, early morning, etc.)? You may want to consider a different scale for emergency work unless they put you on a retainer. Will you do a proposal for free?

All this is pointless if you are losing work or getting more than you can handle because of your rate. Don't be afraid to adjust.

Assuming you are doing some type of standard consultancy, your percentages seem to be incorrect to me. I would take my standard salary and add 50% more to cover the costs of benefits my employer provides (pension, insurance, vacation, etc.) That is the base rate you cost your company. Your company has overhead and also needs to make a profit. So I would take the rate we just figured out and add 50% more to it. Thus a 10,000 salary turns into 22,500.

This is just one way of doing this. You can also look to see what other firms charge for doing the same thing. If they are large firms, their overhead will be higher, so you can probably cut your cost per hour by 20% from theirs.

Finally, if you are doing something highly specialized, you can charge whatever you feel like. One of my specialized talents is designing type (fonts). I have an hourly rate for normal consulting work, but charge much more for designing a font. There are few qualified type designers, so I can name a price.