The number one question new entrepreneurs ask us is: “How much should I be charging for my services?” It can be tough to know if you’re asking for enough to make a solid profit or if you’re overestimating the fair market value of your product or service. Fortunately, we’ve got a super easy way to determine what you should be charging.
This Easy Formula Will Tell You Your Hourly Rate
Determining how much to charge your clients is a simply matter of calculating how much you spend and how much you want to make. Here’s a quick, step-by-step formula for setting an hourly rate for your services.
Calculate your annual expenses
Expenses are the main factor driving the cost of business. They’re also often the reason consumers see pricing differences among similar services. Final prices often vary because businesses’ expenses vary—some might have more employees, insurance, workers’ comp, office employees… and so on. So to determine how much to charge, you first need to know how much you spend. So take some time to look over your annual expenses.
If you’re just starting out, you won’t have the past data to know actual expenses, so you might have to do a little research and budgeting instead to come up with an estimate.
What’s included in your expenses? Everything that goes into your business—taxes, domain registrations and hosting, LLC filings, rent, advertising, legal or accounting services, software and programs, employee wages, insurance, and more.
Figure out how much you spend per hour
Once you know your annual expenses, it’s easy to calculate how much you spend on your business per hour. All you need to do is divide your total annual expenses by 52 weeks in a year, then by 40 hours in a week.
For example, let’s say you spend $10,000 on your business every year. Divide that number by 52 weeks in a year. So you spend $192.31 each week. Now divide that week by 40 hours… and you get $4.81. That means it costs you $4.81 per hour to run your business.
Next, let’s look at desired profits
Now, think about what you want to earn per month with your business. Remember to be realistic here… overestimating your worth will set your prices too high and make them unappealing to clients. However, you also don’t want to sell yourself short! If you’re not sure what you should be earning in your field, it might help to do a little research.
All right, let’s say you want to make $10,000 a month. And let’s make it easy and say you work 22 days a month. Divide that $10k by 22 days, and your goal is to make $455.55 per day. Divide that day by 8 hours and you’re looking at $56.82 per hour. That’s how much you want your business to earn per hour to hit your target of $10,000 a month.
Now, add expenses to profit to calculate charging rate!
In order to make your desired profit, you’ve got to charge that hourly rate ON TOP OF your hourly expenses. So remember, your business costs you $4.81/hour to run. And your goal is to earn $56.82/hour. So add those together and you get $61.63. That’s how much per hour you should charge to hit your desired profit at your current expenses! Easy, right?
Obviously this number will fluctuate based on your expenses and your desired profit. As your expenses increase—you add employees or start paying for additional services, like insurance or rent or a website—your prices will fluctuate, too.
Still Not Sure if Your Prices Are Right?
Still not sure if you’re charging clients the right amount? We can help! At Corridor Consulting, we’re pros at helping small businesses with everything from pricing and setup to marketing and advertising to website design and much more! Contact us today and let’s talk about your business—and how we can help it grow!