Day Rate Calculation: Getting Your Number Right
Key Points
Day rate = annual salary you want ÷ billable days (220/year). Budget for: tax (25-35%), expenses (10-15%), bench time (2-4 weeks), profit. Math determines your rate floor.
The formula
Step 1: Target annual income. "I want to take home £50k/year personally."
Step 2: Account for tax. If PSC, ~30% effective tax on profit. Need £71k gross to net £50k. (£50k ÷ 0.7 = £71.4k profit needed.)
Step 3: Billable days. 252 working days/year - 20 holiday - 8 training/admin - average 2 weeks bench = ~200 billable days/year.
Step 4: Calculate day rate. £71.4k ÷ 200 days = £357/day. Minimum rate to hit £50k personal income.
Expense buffer
Add 10-15% for business expenses (software, equipment, accountancy). If £71k profit, set aside £7-11k for expenses. Actual profit to extract: £60-64k.
If expenses £8k, your net income: £50k + expenses = £58k gross business profit → £40-42k personal after tax.
Bench time factor
Account for 2-4 weeks unpaid bench time/year. If billable only 200 days (52 weeks - 4 weeks bench), your day rate must cover 52 weeks of living cost across 200 days.
Example: Need £50k/year personal. 200 billable days. £50k ÷ 200 = £250/day minimum. But this assumes zero expenses. Add 30-50% for tax + expenses = £325-375/day realistic floor.
Market rate vs calculated rate
Your calculated rate is floor (minimum to survive). Market rate is what clients pay. If market £400/day, your floor £350/day = good margin. If market £250/day, your floor £350/day = not viable in that market.
If calculated rate exceeds market, either: reduce personal income target, move to different market (higher paying), or find efficiency gains.
Profit margin
Don't just break even. Add 10-20% profit margin above your personal income. "I need £50k personal income + 15% profit buffer = £57.5k gross requirement." Extra profit builds emergency reserve, funds investments.
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