The best answer I've come across for this question is: "What do you want to earn?"
This then has to be moderated by: "What can the customer pay?"
You can weave a way somewhere in between.
You may also find that if the job is going to take a year, then you could perhaps charge a fixed fee - pick a number - $100K, and say "thats the price". It means you take on the risk if you over-run, but you also walk away with spare $ if you can do it faster.
Otherwise, the way of working this out goes something like this:
- I want to earn $100K per year.
- There are 52 weeks in a year, with 5 working days = 260 working days.
- But I want 4 weeks off a year for holidays (deduct 20 days)
- I better allow 2 weeks off a year for illness (deduct another 10)
- I need to allow for public holidays (varies by country but most places, about 12 days/yr)
So, total actual working days / year = 218.
I want to work 7.5 hours / day, so there are 218 * 7.5 = 1635 working hours / year.
My $100K / year therefore works out to $100,000 / 1635 = $61.16 / hour.
BUT... to this you should then ADD:
- Allowance for retirement fund, workers compensation, insurance, odds and ends costs, etc.
As a rough rule these come to about 15% to 25% of salary depending on where you live.
So, shoot for the middle ground and add 20%: about $74/hour.
If you don't like these numbers, figure out what you want to use and re-run the calculation.
EDIT: just a note: a lot of businesses actually work on a budget for their staff of 1500 working hours / year. You might also want to take into account an inefficiency / distractions / goofing off factor. NOBODY consistently actually WORKS for 7.5 hours / day.
EDIT 2: "what do you want to earn" is what you want to bank - after expenses. The allowance for retirement fund, insurance, odds and ends etc is your costs. If you have other costs, eg capital equipment, paying a book-keeper, etc, then you need to add those on as well.
And - long term contract rates are generally lower than short term. Short term needs to include an allowance for job-hunting time / time spent not earning.
ROUGH rule of thumb is that for professional, qualified, experienced software and engineering work over a long term (12 months or more), a rate of about $75 to $100 is pretty normal and expected. (This is AUD, but with exchange rates I'd expect USD to be similar, not identical, but in that region). A real hot shot - perhaps $120 to $150, but you better be hot. If the employer provides equipment (eg PCs, compilers, etc) then knock off about $10 / hr. Short term rates (ie 6 to maybe 12 months): add $10 to $20 / hr.
EVEN ROUGHER: about $65 to $85 / hour is pretty much considered "mates rates" - ie what you charge your friends. At those rates your accountant is likely to be horrified.
PEDANTS CORNER: Rough rule of thumb means just that: rough!