Name Your Price

When I formalized my company, one of the most difficult processes was to set my prices. This advice from DLM might help you:

An Entrepreneur's Guide To Setting Service Rates

Posted: 05 Oct 2009 07:09 PM PDT

Setting your rates as an entrepreneur is often one of the hardest aspects of a business. The main reason for this is that we don't learn these things in school. While we learn to calculate 1+1= 2, nobody prepares us for life school as an entrepreneur.

So what most of us do when we get to the rate setting part is to go out in search of what others do in the industry and then copy them.

Why is copying the rates of other entrepreneurs not a good idea?
Simple. You're not the same person, your experience is not the same, you're not providing an identical service, and if you're serious about your business, your going to insist on having a better total output and quality. So to sum that up, 3 reasons:

• Experience.
• Brand.
• Reach.
  

Let me explain these in more detail.

Experience
Despite the fact that you are in the same industry you must never forget that you are just starting out. Therefore you lack 'experience' in the sense of lacking online exposure. Even if you have been doing your line of work for years and decide to move online, you need to consider the effects of setting rates on potential clients.

Generally speaking, if you are new at this, start lower to get work fast(er).

Brand
Having your own brand is equal to demanding the rates you want. But before this happens you need to backtrack and start from the beginning.

It takes months or even years to build a reliable online brand. Those that stick around and are known to deliver reliable, consistent work will be rewarded in the end. The Internet is a very fast-paced medium; stick around and you can benefit too.

Reach
Your reach is directly influenced by your brand. When you first start out nobody will know you, nor will they care to work with you. It is up to you to turn this lack of exposure around into something tangible in demand.

The more people who knock on your website's door, the higher you can set your rates.
A simple example to rate setting for new entrepreneurs:

• You need to find the industry average and start out by setting your rates in the pool of those of your competition. This means not too low (unless you are a newbie to the industry and totally lack experience,) and not too high. Opt for the comfortable middle ground instead.


• 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 want to go on a holiday at some stage so you need to factor this into your calculation too by increasing your hourly target rate to the percentage of weeks you plan to be away.


• In this instance 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 can you make the connection 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 is $200.


• Can you see how quickly you are able to look past rates and see whether you are actually on track with your income?


• 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 else rise 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 your rates or if you need to adjust them accordingly.

Written on 10/5/2009 by Monika Mundell. Monika is a passionate freelance writer and pro-blogger. Her blog Freelance Writing helps new freelance writers to get started in this exciting industry. If you like to work with Monika, feel free to visit her Portfolio site.

Photo Credit: hermzz