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How To Set Your Business Fees

I am often asked, "How do I know what to charge people for my services?"

Some people think that because they were paid £10 an hour in their last job, that if they were to charge double this (£20 per hour) then "this would be about right wouldn't it?" WRONG!

People who have never run a business find it difficult to imagine why a business charges £50 an hour, for example. They think they are being "ripped off." They fail to understand the inner workings of a business. Take a business speaker, for example, who charges £800 a day. That might seem a lot - but if he/she only speaks once a week, then that puts a whole new perspective on things, wouldn't it?.

HERE'S JUST ONE SIMPLE WAY TO SET YOUR FEES
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TO START WITH, THERE ARE THREE MAIN FACTORS TO CONSIDER...

1. WHAT YOU NEED TO EARN,

2. WHAT THE MARKET WILL BEAR, AND

3. WHAT YOUR EXPENSES ARE?
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YOU HAVE TO ASK YOURSELF THESE 5 QUESTIONS...
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1. How many CHARGEABLE hours or days will I have and what revenue do I need to generate?

HERE'S A TYPICAL CALCULATION:

365 days, minus 104 weekend days, minus 20 vacation/holidays = 241 working days.

If, on average, you spend one third of your time on administration and marketing,(which is not directly chargeable to anyone) then you must reduce this 241 days by one-third, which brings your CHARGEABLE DAYS down to 160.

THEN, if you want to earn, say, £40,000 per year and your annual overheads are £20,000, (i.e. you need to bring in £60,000 to pay you and your expenses) you would need to divide this £60,000 by the 160 chargeable days = £375 per day.
(or £47 per hour, based on an 8 hour day.)

That might seem quite a lot, but now you will start to realise why businesses charge five to ten times per hour what they pay their employees.

If you are niaive enough to charge, say, £10 to £20 per hour, then you'll likely go broke pretty fast, or at best, pay your expenses but bring you a meagre salary.
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2. What is the going rate for services like mine? How does this compare with the above rate?

You need to do quite a bit of research to find out what other people charge for what you do, and then try to judge where you fit. Remember:
* Charge too much and people will avoid you like the plague.
* Charge too little, and people may suspect poor quality.
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3. Will I charge hourly? Daily? By project? Or will I work on a retainer with most clients?
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4. What kind of proposals or quotes are expected? In what format?
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5. What expenses can I pass on to my clients? (i.e., cost of assessment instruments, meeting room expenses, travel expenses, etc.)
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Obviously, if the market will not bear a fee high enough to cover your expenses and what you need to earn, you need to reconsider your business plans. Many novices make the mistake of overestimating the number of chargeable hours or days in a year when calculating their fees and subsequently charge too much (resulting in no customers) or too little (resulting in no profit).

You also need to consider what is chargeable and what is not. Preparation and administrative time are not typically chargeable, nor is sales time.

Information provided by John Edmonds  - http://www.getaheadinbusiness.com 
Copyright 2009 John Edmonds