The White-Pages Test of Your Hourly Fee

While I don’t advocate quoting your freelance services by the hour (project-based or monthly retainer are much better models), it is still useful to know your “hourly rate”–roughly what you want to get paid per hour of client work.

Even if you’re an entrepreneur, this is also useful to know, so you can make decisions about how to use your time, what tasks to outsource to freelancers, etc.

So how do you figure out your “hourly rate”?

It’s simple.

Pretend I called you and said, “Hey, I want to pay you X dollars to sit in front of the white pages for an hour and read it aloud to me. I’ll PayPal you the money immediately after you’re done.”

What would X have to be, so that you’re response would be, “Wow, that sounds great. Let’s start now.” That’s your hourly rate.

In response to an earlier version of this idea, one of my readers, Lucas Pellan, asked me, “But would you take a million dollars a year to sit in a completely empty room from 9-5 every day?”

Good question. My answer, of course, is “Of course not!” I wouldn’t take a million a year (or any amount) to sit and do nothing all day.

(Sadly, many people in unsatisfying jobs make a different choice–and for a much lower rate–to sit around and do nothing satisfying or productive all day. This rate is called their annual salary.)

I have chosen the life of a freelancer, precisely because I value my time. However, I need *some* money to live, more to live comfortably. But once I have that amount, I’d rather do other things with my time, such as spend time with my wife, or write. 

So the question becomes (and my thought experiment isolates…), what is the marginal $$$ rate at which I would trade 1 hour away from doing things I love such as writing or spending time with my wife, for money?

The “white pages” conceit is put there specifically to isolate the time -trade component. I.e., in this thought experiment there is no inherent value in the activity being traded. It is purely a time-for-money consideration. That does NOT mean I’d trade 10-hours a day at that rate. But I’d trade an hour or two a day reading the white pages at that rate if that’s all I had to do and the rest of the time I could write and be with my wife.

The White Pages test is designed to help you understand what an hour of your time is worth to you at the margins. For me, that # is around $500. For me what that means is, for example, if a direct flight costs $300 more than a flight with layover, but saves me 2 hours, that’s a huge bargain and I go for it.

Do this thought exercise yourself… and tell me, what is your White Pages rate?

(Note: this figure is primarily useful for “internal” decisionmaking about how you spend money and allocate time. The “external” figure you quote clients will probably be higher, as it has to cover cost of customer acquisition, sales, marketing, etc. Not every customer calls you out of the blue with offers of work. Usually, you have to work to get the work–i.e., sales and marketing–and that work needs to be covered in the rate you charge clients.)