As you start and grow a business, figuring out the right amount to charge for your work can be daunting. Charge too much and you’ll drive away clients; charge too little and you’ll be overworked or out of business.
Getting the price right is an ongoing process, and your rate may change as your business matures. Don’t be afraid to experiment, especially early in your business, until you settle on a rate that is fair to you and your clients.
A blog featured on the Small Business Administration website, How to Calculate and Negotiate Your Hourly and Project-Based Pricing by Caron Beesley suggests this formula:
Divide your former salary by 52 (work weeks); then divide that number by 40 (the number of work hours in a week). Then mark it up 25-30%.
She explains, “Your mark-up covers both your value and experience, but also takes care of our business costs such as networking, selling, and other administration, not forgetting your self-employment tax obligations and healthcare insurance costs.”
Now that formula may not work if you’re offering a service vastly different from what you did as someone’s employee. Beesley also suggests you look at other factors in setting a rate, including your experience, industry standards and location before determining a price. 20 Pricing Principles for Freelancers by freelance writer Laura Spencer outlines 20 valuable price setting principals, including:
- Base Your Fee on Quality of Service, Not Quantity
- Update Your Price Regularly
- Don’t Commit to a Project Price without Knowing the Scope
- Never Guess What to Charge
- Track Your Time to Understand Your True Rate
- Understand When to Use Hourly and When to Use Project Pricing
Much thought and effort should go into determining a rate for your services, and pricing your work properly shouldn’t be taken lightly. Ask yourself those important questions be for you set, or reevaluate, your rates.