As owners of a service-based small business, one of the hardest learning curves for us was to figure out what to charge for services. We want to provide great value for what we do, but we also don’t want to find ourselves overworked and underpaid. This just leads to frustration and hurried work, and the last thing we want to do is not provide our very best to our clients.
Asking too much may make potential clients turn to your closest competitor for another option. Asking too little may make you seem inexperienced and likely to provide a poor product. Not to mention the fact that you may not be able to cover your costs.
While in business school, I learned that cost for services should be calculated by adding your own costs to the profit you wish to make. The formula looks something like this:
Price = Costs + Profit Margin
Costs include materials needed for the project, administration (such as paperwork like drafting contracts or logging your hours), and overhead expenses (such as rent and utilities). I can understand that it may feel a bit uncomfortable to charge for things that are outside of the scope of the project, however, you must understand that this is what large companies do all the time, and they don’t feel bad about it.
Ways to Charge Your Clients
Before we get in to calculating your own formula, let’s talk about the different ways you can charge for your services. First, you can quote a fixed amount for an entire project. Or, second, you can charge by hour. Until you get very experienced in your business and have numerous projects under your belt it can be very hard to know which to choose. There are pluses and minuses to each.
Quoting a fixed amount can be very difficult without a detailed contract describing the exact parameters of the project and expected outcomes. And we all know how overwhelming contracts can be, both to draft up and to have to sign. Clients might find an over-complicated contract to be a deterrent, as it seems as thought the service provider is inflexible and likely won’t be willing to work with them if anything should change to the scope of the project, which almost always happens. However, there is the security that comes with a detailed contract and both parties knowing exactly what is expected of the other.
Charging by hour may be a better option for some service providers, as it does allow for more changes to occur and fluidity in the project. It is a good idea to set loose limits, though, for the amount of hours you are willing to put in and the amount your client is willing to pay for. Be ready to provide details as to what you are doing at all times, too. Log your hours and list the tasks accomplished. This helps maintain a sense of trust and responsibility.
How to Calculate Your Perfect Pay Formula
Here are four tips for figuring out what exactly you should charge for services:
- Know the competition. Consider their experience and skill as compared to yours, and how your services compare to what they are offering. If you feel you can charge at a higher price point, be sure to be able to explain why.
- Factor in your salary goal. There are about 2,000 hours of work in a year, so let’s say if you want to earn about $100,000 annually (before taxes) you will need to charge $50 an hour. Consider, however, how much time you will spend on advertising for clients, managing client demands, and looking after your books. For most, this is about 50 per cent of their time. So, if you really want to earn $100,000 a year you should charge $100 an hour to make up for the difference.
- Consider your costs. Add up all of your expenses, including rent, utilities, driving, phone bills, supplies, and your accountant, then add that on to your new total. So now, if it costs $50,000 a year to run your business, you will want to charge $125 an hour to make $100,000.
- Provide several options, plus bundle, bundle, bundle. Don’t just offer one price for your services. Give your clients plenty of choice as to what they may hire you to do. This gives you the opportunity to upsell once the job is done when you have shown what you can do. Also, we like to bundle service together in packages and then offer a discount to package-purchasers. This makes people feel like they’re getting a good deal (when they are), plus saves you the headache of having to draft up additional contracts or service agreements.
Why We Always Start With Why
I truly believe that the most important thing when it comes to operating your own business is to always start with why. This means knowing exactly what your impetus is for starting your company, what your brand is, and how you will contribute to your community. I didn’t develop this concept, but it’s something I rely on every day. It comes from a book by Simon Sinek, titled Start With Why, which provides a novel explanation for how great leaders motivate the people who follow them. If you want the short version, try this Ted Talk from Sinek himself for a brief, but detailed synopsis. The basic idea is that if you want to inspire someone, you can’t just tell them what you do or how you do it. Inspiration comes from showing them why you do it, first, and there are plenty of ways to incorporate this concept when marketing your business.
Let the team at Emphasize Design help you find your why, and once we do, we can complement it with appealing web design and attractive online marketing to grow your Calgary business. We offer all of the tools you need to convert more leads, build better relationships, and close more deals.
