What Is My Time Worth: Figuring Out What To Charge For Your Services

11 Mar What Is My Time Worth: Figuring Out What To Charge For Your Services

The world will let you work for free forever.  The problem with that is you need to eat and pay your bills.  So at some point you need to charge for your services.  Charging the right amount is important, but sometimes it can be difficult to decide what the right amount is.  What you charge for your time also says something about you to the world.  So how much do you charge?  WARNING MATH AHEAD

A good place to start when deciding what to charge for your services is to work from your expense budget and figure out how much you need to earn to offset your overhead and operations expenses and still make a living.  You can consider the following:

(Fixed Overhead+Target Profit)+(Cost of labor x units of service)/(units of service)

(60,000+45,000)+(($18 per hour x 3 employees)x 2000 hours)/(3 employees plus me x(4o hrs per week x 50 weeks each year))

This calculation would let you know roughly how much you need to charge per hour to offset your costs and turn a profit on a strictly hourly basis. Once you know what you need to charge you can use that as your bottom line.  If the market won’t bear the price you need to charge then their may not be a market for your services or you may need to reconfigure fixed costs etc.  Determining what the market will bear takes some research.

The next step is to research how much your peers charge.  To do that first you need to define who your peers are.  Ask yourself:

• Who else provides similar services?
• Are those services of a similar quality?
• Are those people in you same geographic area (if that matters)?

Your peers, also known as competition, may not match your services and brand exactly but are close enough that a potential customer may choose between you and them.  If you provide a service that doesn’t have to be provided locally, such as web design, you may have a broader base to research.  Much of this kind of research can be done with a web search, phone book, chamber of commerce member directory and a Better Business Bureau listing.  You can make a list of who the businesses that are most like yours.  Pick a few and do a little research.

Once you know who your peers are then you need to find out what they charge.  When my mother owned her own independent cleaning company she would request a free quote from her corporate competition every so often so she would know where her rates would fall against other quotes her potential customers were getting.  A key point in this is that knowing what your competition charges doesn’t have to define what you charge.  Knowing how you measure up and understanding the market you are in is what you are working toward.  Knowing what the competition charges should not be confused with knowing what the market will bear when it comes to prices.

After you get to know your peers, their prices and what the market is like then you need to decide where your services and brand fits in. Now is the time you need to be confident, but not unrealistic about your brand.  Some of the points to consider would be:

• Do I offer something more than my competitors?  Maybe you have a degree in your field and the majority of your competition does not.  Maybe you have a location that is easier to get to.  Maybe you are just more skilled and offer a better service.
• What are people in unrelated fields who offer similar levels of service charging?  If you offer a service that requires specialized training, certified training for your laborers, and requires specialized licences what do other services that require similar standards charge?  A boat mechanic might look to a car mechanic, a bookkeeper and an electrician for market research.

Lastly you want to test your pricing and monitor it.  Being priced at the top end of your market sends the message we are better and worth more than our competition.  If that is true you will be fine and your customer base will pay and continue to pay for your services as long as they continue to perceive value.  However, if you have overpriced your services within your market and not delivered that level of service your price promises you will have unhappy customers who will discontinue with your services.  Being priced at the bottom of your market can attract customers who are price shopping, but are those the customers you  really want?  Also, always be cautious of competitive pricing.  A race to the lowest price is a race to the bottom and we have already established it doesn’t work out when you work for free.