How to figure out your pricing
For many businesses, and freelancers, in particular, knowing what to charge can be a real stumbling block.
So in this blog, we’ll talk about what you need to consider in order to price your services correctly.
Know your worth
Pricing your services shouldn’t be a finger-in-the-air exercise, but that, unfortunately, is how a lot of businesses go about it.
Correct pricing is a balance between knowing your worth in what your expertise brings to the client, and credibility – your experience and ability to do the job.
A helpful maxim to remember is ‘my worth is not determined by your budget’. A lot of businesses are afraid to lose a client if they don’t cut their fees, but your price shouldn’t be driven by what clients want to pay.
Think of your business like a supermarket. They all sell the same things, but some are more expensive than others. There is a supermarket for everyone and you need to remember the same for your service – it won’t be the right solution for everyone and your job is to find who it is right for.
What to consider when setting a fee
Have you ever worked out how much it costs you to sit at your desk, even before you’ve done anything?
A common mistake is to think ‘I want to make £50,000’ and believe that is all your business has to make. You’ll end up making far less this way.
Working out your business expenses, including your salary (this is an expense and shouldn’t be confused with profit), is the first step in working out your rate.
Add together all your expenses, including:
- Rent, utilities, telephone and internet
- Salaries and subcontractor expenses
- Website hosting and software subscriptions
- Advertising and marketing costs
- Professional services such as accounting and legal
- Mileage and business travel
- Memberships, registrations, courses
- Out-of-pocket expenses…
And whatever else you spend in your business.
You also need to work out how much profit you want to make, usually in a percentage.
So let’s say you want a £50,000 salary, your expenses come to £10,000 and you want a 10% profit.
£50,000 salary + £10,000 expenses + £6,000 profit = £66,000 cost of doing business.
This is much higher than the £50,000 original figure.
Now let’s look at how much time you have to earn that figure. Let’s assume you’re a sole trader with no employees.
It’s tempting to think that you have 40 hours per week and there are 52 weeks of the year, so you have 2,080 hours.
That works out to an hourly rate of £32.
But you won’t work 52 weeks of the year, and not all 40 hours in the week will be billable.
If you work 8 hour days, spend 1.5 hours on admin and take a 30-minute lunch, that leaves you with 6 billable hours per day or 30 hours per week.
There are 8 bank holidays, and let’s say you take 3 weeks’ holiday, have 5 sick days and 3 days out (conferences/client meets etc.).
That’s 31 days or 930 billable hours. So you now have 1,150 hours to earn £66,000 which is £57 per hour to hit your goal.
This figure is not necessarily what you would charge, but it gives you a ballpark number to keep in mind when writing proposals or putting packages together.
This blog only scratches the surface of working out how you want to price your services but should give you a better understanding of the figures.
Once you have those, you can think about the clients you currently have and who you’d like to be working for to know where to focus your efforts.
We work with a lot of businesses to get clarity in this area. If you need help with your pricing, get in touch for some superstar treatment!
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