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25
Mar
Are You Charging Enough to Make a Profit?
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This has got to be THE number one MOST asked question when you get into business for yourself. And there are actually three ways to do this: a fixed amount for an entire project, an hourly fee, or a sales commission. No matter what method you use, the first thing you need to do is figure out how much you need to charge an hour.
You may know what to charge if you have lots of experience. If you’re just starting out, calculate your rate based on your expenses and then check out the marketplace and adjust your rate up or down.
Here’s how to figure out your rate: add your labour and overhead, add the profit you want to earn then – divide the total by hours worked. That’s your minimum charge to pay expenses, pay yourself a salary, and earn a profit. You might be able to charge more for your services – or you pay have to bite the bullet and do with less. Just make sure your rate is realistic.
For labour, pick a reasonable goal figure for your annual salary. Then figure overhead costs including things like phone, equipment and furniture, rent, utilities, insurance etc. Don’t forget medical/disability insurance, retirement benefits, your income taxes and self-employment taxes.
Profit? Well the usual standard, expressed as a percentage of total costs ranges from 10 to 20 percent. How many hours will you work and will you take a vacation are also factored in. For instance - If you want to take a two-week vacation, you’ll need a maximum of 2,000 billable hours per year (50 weeks x 40 hours). Now that sounds good, but up to 35 percent of your time you can’t bill for as it covers things like upgrading your skills, sourcing business etc.
You might find your rate is higher that the competition – however don’t be afraid to ask for more than those with lesser skills. Low fees won’t necessarily get you business. Many believe you get that you pay for – so try for a realistic balance.
