Setting your rates as an entrepreneur is often one of the hardest aspects of a business. While we learn to calculate 1+1= 2, nobody prepares us for life as an entrepreneur.
So what do most of us do when it comes to setting our rates? We check out what other people in our industry are doing and set our rates accordingly. This isn’t always a good idea. Why? You’re not the same person with the same experience and you aren’t not providing an identical service. In addition, there are 3 main factors at work when you are setting your service rates:
Experience
Don’t forget, you’re new and therefore you lack experience and exposure. Even if you have been doing your line of work for years and decide to expand your business to the Internet, you’ll need to consider the effects offsetting rates on potential clients. Generally speaking, if you are, start with a lower rate to get work faster and more often.
Brand
Having your own brand goes a long way to demanding the rates you want. It takes months or sometimes years to build a reliable online brand. The brands that find longevity are those that deliver reliable, high quality work quickly and consistently. The Internet is a very fast-paced medium; stick around and you can benefit too.
Reach
Your business reach is directly influenced by your brand. When you first start out nobody will know you or care much about working with you. It’s up to you to turn this around into something tangible by creating demand for your work. The more often people hire you, the more experience you gain. The experience you have can greatly extend your reach allowing you to set higher rates.
Here are 9 guidelines to rate setting for new entrepreneurs:
- Calculate your desired income by working out your billable hours: Let’s say your target yearly income is $40,000. Now for the purpose of this calculation let’s also assume that your total billable hours each week are 20. This means you physically work 20 hours/week on income producing tasks. The rest of your time is taken up with non-paying tasks such as marketing, email communication and invoicing.
- With 20 billable hours a week you need to bill a total of 1040 hours in 52 weeks (52*20= 1040.) Naturally most of us will want or need to take time off so you need to factor this into your calculation by increasing your hourly target rate to the percentage of weeks you plan to be away.
- As an example, let’s say I’m planning to take two weeks off during the year so I will subtract 40 hours from the total which leaves me with 1,000 billable hours.
- This means I will be actively working my business 50 weeks @20 hours each during the year. Or 1,000 hours in all I can bill to clients. So how does this relate to your rates?
- It’s simple really: Divide your yearly target income ($40,000) by the billable hours (1,000) to get your target hourly rate ($40.) With a target of $40 per hour and 20 hours a week I know for a fact now that I need to earn $800 for a week’s work. If I choose to work 5 days a week this means that I will have to bank $160 a day to reach my target. If I want to cut back and only work 4 days a week the target income each day will be $200.
The most obvious is that when you first start out you probably won’t be earning $40/hour. But this is when setting rates becomes fun because by having these simple demographics you can get really creative by changing the amount of hours you work to make your target or raise your hourly income and work less hours.
By keeping an eye on your basic calculations you can always tell if you are on the right track with you rates or if you need to adjust them accordingly.
You must log in to post a comment.