Setting the fees and rates for your business can often be one of the most daunting tasks a businessowner will ever have to do. I know it was for me. You come up with a figure in your head and think . . . “That sounds about right.” But then you look at it again and wonder . . .”Is it too high? Is it too low? Have I covered all my bases?” You check out what others in your industry are charging for the same services, and you diligently go over all of your projected expenses. But is that enough?
In the following article, Suzette Flemming, Flemming Business Services, shares 10 easy steps geared toward making the process of setting fees and rates a little bit easier.
By Suzette Flemming
Not too cheap. Not too expensive. It’s tough to be just right. What to charge for the services you provide is an incredibly difficult task. It is one that us business owner’s wrestle with when we open our doors and every time we are asked for a quote thereafter. I have seen advice that ranges from “test different prices” to “survey friends and family” to “pick a number.” However, there is a logical process for setting your fees.
List all the services you provide or intend to provide. This can be time consuming but it is well worth the effort. Be as detailed as possible. The list may be long or it may be short. The only requirement is that you list them all.
List how long it takes you to complete each task. “But it depends . . .” Depends upon what? Are there parameters you need to establish such as the number of miles you can travel, the number of transactions you can do or the number of revisions you can accomplish? If so, split your tasks even further to take these parameters into consideration. For example, you can run three errands within 5 miles of your business within an hour. Or you can create a logo in 20 hours and allow for two revisions.
Detail your target client. Who is your target, male/female, age, on-line, off-line, businessperson, business owner, middle-class, large corporations, etc? Provide as much detail as you possibly can. Keep in mind that no one can have the entire pie. It’s too large. Instead aim for a piece and go for it.
The easy part is over. Research other businesses in your area providing the same services targeting the same clients you detailed in Step 3. What do they charge? Now research similar businesses on the Internet. Again, look for businesses targeting the same clients. What do they charge? Compile a list of businesses, the services they provide and the prices they charge.
Perform a salary survey. There are several web sites such as http://www.salary.com, where you can find out how much someone in a corporation with your job, in your area makes each year. Divide that number by 1080 (40 hours per week times 52 weeks) to get an hourly wage.
What is your time worth? Of course, no one is really paid what they are worth, right? I would like to command $200 an hour for my time. However, I’m not a lawyer and my expertise doesn’t warrant that kind of fee. Realistically, what would you like to be paid an hour for what you do? $25 per hour, $15 per hour, $75 per hour?
Compare prices from Steps 3, 4 and 5. I’m sure you will find a large range of prices. Over pricing your services and you will not have any clients. A larger issue is under pricing your services. Bargain hunters will always want to negotiate and obtain a lower rate. Once you lower your rate you will always have to deal to get what you are worth. Your value to clients will be diminished, as they will see you as a bargain provider and, perhaps more importantly, you will feel like a bargain. Under pricing will lose you clients as well. After all, you get what you pay for.
Decide upon your rates. Your hourly rate should be more than the rate you determined from the salary survey (Step 5). It should also be comparable to the rates within your area (Step 4). Can they be higher? Yes, especially if your perceived value is higher or you provide services no one else does.
After you have decided upon a rate add 10 percent for indirect expenses. In addition to your time, you incur indirect expenses such as childcare, building expenses, software, computers, etc. that are needed to run your business.
Don’t include direct expenses in your hourly rate. These are items that are specific to the project such as envelopes, shipping, post cards and postage. Often times the cost of these items fluctuate over the life of a project. I recommend that these items be billed separately on your invoice and not become part of your “service” fee.
Batch your services. Charging by the hour is cumbersome. You have to track the amount of time you spend on a project. Many times the 5 or 10 minutes spent today and last Monday aren’t accounted for because it was such a short amount of time to track. If you “give” your client 10 minutes a day you are losing about 3 ½ hours of billable time each month (multiply that times the number of clients and your rate to find out how much you are losing each month). Package your services and bill for the package. The client isn’t paying for your time. You are being paid for your expertise and your ability to get the job done.
Create and Print your rate chart. Use the list of services and time compiled in Steps 1 and 2 as well as the batches you created in Step 9 to create a rate chart. Print this and use it when asked for a quote. You will find quoting is much quicker and simpler with no guessing involved.
Careful research and careful analysis of details such as competition, target client and services offered will lead you to the “just right price” for your services.
It’s time to look at your actual expenses vs. your budget. Are you where you thought you would be? Are your expenses more than they should be?
If you have questions or need clarification on anything, please feel free to call (425.432.5870) or email us.
Since 1994, Suzette Flemming, owner and CEO of Flemming Business Services has been assisting service corporations, e-commerce start-ups and non-profits in untangling their finances and providing clear financial direction.