Your True Hourly Rate Calculation
Understanding Your True Gig Worker Hourly Rate After Expenses
As a gig worker, your reported earnings often don't reflect your actual take-home pay. Many platforms show a gross hourly rate based on your payments and hours, but this figure can be misleading. To truly understand your profitability and set fair rates, it's crucial to calculate your *true* hourly rate after accounting for all your business expenses.
Why Gross vs. True Hourly Rate Matters
Imagine you're paid $30 per hour for a project and you worked 40 hours, making $1200. On the surface, that sounds great. However, if you spent $300 on gas, $50 on software, $75 on supplies, and $50 on marketing during that same period, your actual profit is significantly lower. Your true hourly rate is what remains after these essential business costs are deducted.
Key Expenses to Consider
- Vehicle Expenses: This includes fuel, regular maintenance, insurance, and the depreciation of your vehicle if used for work.
- Software & Tools: Many freelancers rely on specialized software, design tools, project management apps, or other digital services.
- Office Supplies & Equipment: From printers and paper to ergonomic chairs, any physical items purchased for your work setup.
- Marketing & Advertising: Costs associated with finding new clients, such as website hosting, online ads, or business cards.
- Other Business Expenses: This is a broad category that can include your internet bill, mobile phone service, professional insurance, licensing fees, and even a portion of your home office utilities if you qualify for tax deductions.
How to Calculate Your True Hourly Rate
Our calculator simplifies this process for you. Here's the logic behind it:
- Sum All Your Expenses: Add up all the costs incurred for your business during a specific period (e.g., a week, a month).
- Calculate Net Earnings: Subtract your total expenses from your total earnings for that same period. This gives you your actual profit.
- Calculate True Hourly Rate: Divide your net earnings by the total number of hours you worked during that period.
The formula is:
True Hourly Rate = (Total Earnings - Total Expenses) / Total Hours Worked
Example Calculation
Let's say for a given month:
- You earned a total of $1500.
- You worked a total of 50 hours.
- Your vehicle expenses were $250.
- Your software subscriptions cost $50.
- Your office supplies added up to $75.
- Your marketing efforts cost $30.
- Other business expenses (internet, phone) were $100.
Total Expenses: $250 + $50 + $75 + $30 + $100 = $505
Net Earnings: $1500 – $505 = $995
True Hourly Rate: $995 / 50 hours = $19.90 per hour
As you can see, while you "earned" $30 per hour based on gross payments, your *true* hourly rate after covering essential business costs is $19.90. This is a critical number for understanding your business's health, negotiating future rates, and ensuring you're being fairly compensated for your time and effort.