The time audit to do before raising your rates
· 6 min read
Before you raise your rates, measure two weeks of actual working days and divide what you earned by the hours you were really at the desk, not the hours you billed. That figure, your effective rate, is almost always well below the rate on your website, and the size of the gap tells you how much to raise by and how to justify it without flinching.
The rate you quote is not the rate you earn
Your stated rate is what you charge for an hour of billed work. Your effective rate is your income divided by every hour the business took: the billed ones, plus the proposals, the calls that did not convert, the invoicing, the software updates, the afternoons that went somewhere you cannot name. Most freelancers have never calculated the second number, and the reason rate raises feel scary is that they are trying to justify one number while actually living on the other.
Once you know the effective rate, the raise stops being a negotiation with your own nerve. It becomes arithmetic. If you are billing 80 an hour and earning 38 for every hour you work, a raise to 95 is not ambitious; it is a partial correction.
Run the measurement for two full weeks
One week is too short because it will be unusual in some way. Two weeks gives you ten working days, which is enough to see the pattern.
- Pick two ordinary weeks. Not the fortnight with the conference, not the one with a public holiday. If you cannot find two clean weeks, take three and drop the odd days.
- Record the start and end of every working day. The first moment you open something for work, and the last. Include evenings. Include the Saturday morning you “just checked something.”
- Record the time in front of the screen, by app. This is where a running tracker pays for itself. Punchcard does this without a timer: it notices which app is in front, and at your closing time it prints a receipt with time per app and a day total. Ten receipts at the end of the fortnight is the dataset. If you prefer to do it by hand, write the app and the time every time you switch for two weeks, and expect to miss a lot. The post on an honest time audit without a spreadsheet covers both methods.
- Keep a separate note of which client each block of the day belonged to. A tracker that records app names cannot know this. One line per day in a text file is enough: “Morning: Client A. After lunch: proposal for B. 4 to 5: invoices.”
- Do not change your behavior. The point is to find out what a normal fortnight costs. If you work harder because you are being measured, you will raise your rates by the wrong amount.
Split every hour into four buckets
At the end of the fortnight, put each day’s hours into four columns. The receipts give you the totals and the shape of the day; your daily note tells you whose time it was.
Billed client work. Hours that appeared on an invoice, or will. This is the only bucket your stated rate is charged for.
Unbilled client work. Hours spent on a client that you did not charge: the extra revision you let slide, the call that ran long, the reading you did before starting. Be strict here. Most freelancers find this bucket is larger than they thought, and it is the bucket that quietly sets the real rate.
Business overhead. Proposals, invoicing, bookkeeping, marketing, learning the new version of a tool, updating the portfolio. Necessary, unbillable, and often a quarter of the week.
Drift. Time at the desk that produced nothing and belonged to nobody: the forty minutes after lunch in a browser, the mail checking, the switching between things. A receipt makes this bucket visible because the apps where drift happens show up as lines you did not expect. See where does the workday actually go for what that tends to look like.
Total each column over the ten days.
Calculate the rate three ways
Take the income for the fortnight’s work (use what was or will be invoiced for the billed hours; this is about the rate, not cash flow).
Stated rate. Income divided by billed hours. This should come out at, or near, the rate on your site. If it does not, you are already discounting somewhere.
Client rate. Income divided by billed plus unbilled client hours. This is what each client is actually paying you for their work. The gap between this and the stated rate is the cost of scope creep and generosity.
Effective rate. Income divided by all four buckets. This is what an hour of your working life is worth right now.
The three numbers usually sit in a steep line, and the steepness is the finding.
Decide the raise from the numbers, not the nerves
Now the raise has a basis. There are two levers, and the audit tells you which to pull.
If the gap between stated and client rate is large, the problem is unbilled client hours, and the fix is scope discipline more than price: fewer free revisions, a stated hourly rate for extra rounds, calls capped at their booked length. Raising the rate without fixing this just raises the value of the hours you give away.
If the gap between client rate and effective rate is large, the problem is overhead and drift, and a rate raise is the correct tool, because overhead does not shrink when you get better at the work. Decide what effective rate you need to earn, multiply by the ratio of total hours to billed hours, and that is the stated rate required. If you need 60 effective and you bill 50 percent of your hours, you need to state 120.
Then round to a number you can say out loud, write it into the next proposal, and do not explain it. Rates that come with explanations invite negotiation.
What the audit cannot tell you
A tracker that records app names knows that Tuesday was 7 hours 20 minutes, with four hours in your editor and ninety minutes in mail. It does not know which client the editor hours were for, which is why step 4 above exists and is not optional. Punchcard in particular has no projects, tags, rates or invoicing, and it will not split a day by client for you; it gives you an honest total and an honest shape, and the splitting is a one-line note you keep yourself.
It also cannot see the hours away from the Mac: calls on your phone, thinking on a walk, reading a printed brief. Add those from memory or calendar, and accept that they are the least precise part of the audit. They are usually a modest fraction of the total, and the receipts keep the rest honest.
Questions
How often should I repeat the audit?
Once a year is enough for the full four-bucket version, ideally a few weeks before you plan to revise rates. Between audits, the daily receipts keep running, so the total-hours side is always available; it is only the client split that needs the fortnight of notes.
What if my effective rate turns out to be fine?
Then raise anyway, by a smaller amount, because costs rise and your skill has improved since you last set the rate. The audit is not just a justification for raising; it is a check on how much, and “not by much” is a valid answer.
Should I tell clients the effective rate?
No. It is a number for you. Clients are told the stated rate and the scope, and the audit is what lets you say both with a straight face.
Does Punchcard record the hours I bill?
It records the hours you work, by app, with a total per day, and nothing about billing. Whether an hour was billed is something only you know, and the audit pairs the receipt totals with your own note of who each part of the day was for. For the distinction in more depth, read the difference between hours open and hours billed.