What are you Worth?

Many people use time as the basis for charging their customers.    Pricing is so important after all it determines:

  • The profit you make.
  • Whether you can take on staff and their quality – and therefore the time you can spend with your family.
  • It tells the world what you think you are worth – like it or not it will be one of the criteria determining how skilful people think you are.

So how do you know if you’re charging the right rate?

One way is to just see what the ‘going rate’ is for the type of work you are doing.  OK, but thinking it through the going rate is determined by other people.  Do you want other people to decide, where you can go on your holidays, how much time you need to spend at work and the price your skills should command?  If not then there must be a better way.

I like to start by working out how much money you would like to receive from the business in cash after tax and how many hours you want to work.  Let’s say £4,000 a month and 40 hours a week with 8 weeks holiday.

I can then do the tax calculations to work out our earnings gross of tax, which might be £5,250.  You also need to add in your business costs – £2,000  monthly?

Although you work 40 hours a week not all of this is chargeable to clients, you need to keep yourself up to date, do administration, marketing and a whole host of other things, so you might only charge 20 hours per week.

Do the sums:  £5,250 plus £2,000 per month divided by 20 hours for 44 weeks a year that comes out at an hourly rate of £98.86.

A cost per hour of £98.86, to end up with a good but not lavish income, makes you think.  But to me it also brings home how expensive bad habits such as mucking around on facebook, answering unnecessary emails and surfing the internet are!