Are you finding it hard to figure out how much you ought to be charging for your services? One of the foremost common questions that freelancers make at starting is what amount they should be charging per hour for his or her services.
There are a variety of things to think about when setting an hourly rate. Here are some tips if you're running a service-based business.
● Work out your total number of income-producing hours per annum
Determining your total number of working/income-generating hours per annum is a crucial initiative. Don't forget to incorporate day off you'll need for:
– Annual leave: taking regular breaks is vital for your physical and mental wellbeing.
– Public holiday: if applicable.
– Personal leave: e.g., for illness or carers obligations.
– Professional development/upskilling.
– Business administration: such as installing equipment or invoicing.
– Non-billable meetings with potential new clients or to network.
It is important to get used to time tracking tools because you have to measure how much you can do in an hour.
Example: If you propose to require four weeks of annual leave, a fortnight of public holidays, a fortnight of private leave, and 4 weeks for upskilling, business administration, and non-billable meetings, this is able to leave you with 40 working weeks to get income.
If you were to figure 40 hours in those 40 weeks, that might offer you a maximum of 1,600 income-producing hours per year.
● Determine the entire operating costs of your business
Do you know how much it actually costs to run your business each year? Estimating your overheads includes expenses such as:
– Leasing business premises (if applicable)
– Any licenses, permits, or business insurances, operate equipment, etc. Consider which are ‘one-offs' and which are required on an on-going basis fee for banking, telephone, and internet services.
– Fees for services like accounting or legal advice.
● Working out your hourly rate
Now that you simply know the entire number of income-generating hours, you'll be available to figure the cost of operating your business, you'll compute what proportion to charge per hour. You have got to factor in:
– How much profit/income you hope to form
– Any capital investments within the business to payback
– Costs of products or materials
Any industry-specific rates of pay or competitor pricing that you're conscious of and wish to factor into your own rate.
Desired profit amount + desired salary + operating costs/ number of income-producing hours = your hourly rate.
For example: Desired profit of $16,500 + desired personal salary of $83,500 + operating costs of $30,000/1040 income generating hours = $125 per hour.
What to do if a client questions your hourly rate/quote?
It's quite common for clients to bargain or question the value of a quote. In some cases, you'll even have a client ask you to scale back your quote without reducing the scope of labor.
It's important to be disciplined when it involves quoting and pricing. If the client demands a lower cost, negotiate with them on what's their desired price then reduce the scope of your work accordingly.