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How much should you charge for your work?
It doesn’t matter if you’re brand new or you’ve been running a business for a while. It’s important to periodically check in with yourself to determine if you’re rates are on point. Everybody’s got to eat!
If you’re a budding new entrepreneur, one of the most important questions facing you is, “How much should I charge for my services/products?”
It’s a real Goldilocks question (minus the bears). Charge too much and you won’t get any clients. Charge too little and you might have enough clients, but you’ll be spinning your wheels and unable to pay the bills. You need to figure out your “just right” price point that will bring in both new clients and money. And once you do, the sky will be the limit for your business’ growth.
Now, if you’re charging an hourly rate you can always go by the industry average as a starting point. But, if you really want to scale your business, offer your clients the most value without running yourself ragged, and rake in the big bucks you might consider bundling your services into packages.
Packages are usually priced lower than what it would cost for the same services individually, making them very attractive to potential clients. But offering product and services packages might create an entirely new pricing headache for you.
If you’re super confident and know exactly what your work is worth then you should have no problem coming up with a price for your packages. But if you’re like most entrepreneurs, imposter syndrome and self-doubt can often have you haggling with yourself when setting a price.
When setting your pricing you need to consider what your market can handle and what your work is worth. Not what you’re worth. I mean – look at you. You’re amazing. I’m sure you’re worth a trillion dollars but no one’s going to pay you that to coach them on their career transition or help them answer their emails.
Knowing what your work is worth can be challenging but there’s an easy way to figure it out.
Put together your package, what’s included, and what the benefits are, and if possible, the expected return on investment and then go out and talk to people who are a match for your ideal client.
You’ll learn a lot.
Not just what they’d be willing to pay but also the words they use when talking about the problem you’re addressing and the solution you’re offering (absolute gold when it comes to marketing).
I see you there looking unsure and nervous about asking people how much they’d be willing to pay for what you’re offering. I get it. It’s a scary question but one you need to ask and be willing to hear the answer.
But, if you just aren’t ready to push yourself out of your comfort zone in that way and want to keep holding on to that money baggage a little while I do not blame you and believe me, I 100% relate.
So I’ll give you a cheat. A bit of a shortcut if you will for figuring out your bare bones pricing.
Here’s my simple formula to bare bones pricing:
((How long you think the job is going to take x 1.20) x (The rate that you want to make per hour x 1.20)) x 1.20
Now, THAT’S a formula that wasn’t taught in your high school math class! (Though it probably should have been as a business-focused math class would benefit SO many teenagers!)
Let’s break it down.
First, consider that pretty much every business owner underestimates the amount of time it’ll take to complete a project. Work always takes longer than you think it will! That’s why you should multiply your anticipated time by 1.20.
Next, I know from extensive experience that most entrepreneurs undervalue their time. You’re probably doing the same thing. That’s why I want you to think about your ideal hourly rate and multiply it by 1.20 to get a better number to give you a proper living wage. (Don’t forget as an entrepreneur you are NOT working 8-hour days of completely billable hours. There’s a lot of work to be done on your business for which you are not billing and not paid, plus you have to pay all your business expenses, your income tax, your time off, your own benefits and retirement savings. You’ve got to charge enough to cover the overall costs of doing business.)
Let’s look at this in real numbers. Say that you estimate that everything included in your package will take about ten hours of your time and that you want to make about $35 an hour for it. In this scenario, your time estimate would be 12 hours (10 hours x 1.20) and your rate would be $42 ($35 x 1.20). This would make the total base cost of your service $504.
Ah, but we still have that other 1.20 at the end of the equation. If you multiply your base cost by that, you end up with a grand total of $604.80. This is the price that you should be quoting to your clients for the package (round it up to a nice buy-able number like $625.00).
But wait, why not just quote them the base cost? Well, because you want to be paid what the work is worth and likely there’s a lot more than just your time going into that package. As I’ve said, most small business owners out there dramatically underestimate the worth of their time and expertise.
While I understand the impulse of not wanting to look greedy, you really do need to know the true value of what you’re bringing to your clients.
In fact, if we want an even simpler formula for determining the price of your packages, we could use this:
(Whatever You Think It’s Worth) x 2
Yup, you should probably be charging double what you think your time and effort is worth! Now that’s math I can get behind!
If you’re green at all this, you might not believe me. You might like the idea of charging more (because: bills) but feel afraid of higher rates.
And if you’re more experienced, it might still scare you because “so-and-so is only charging this much and she seems to be doing fine. I don’t want to lose clients” or “sure, whats-her-head charges a small fortune but she’s so good and has been at it longer”.
But at the back of your mind, there might be a little voice telling you that these formulas are right and that you just haven’t been charging enough.
Remember, you need to create a sustainable business. Your time, energy, and expertise has to be worth something. When you can shift your thinking and value your work as highly as it deserves, it can really transform your business.
Although I do find these formulas to be decent at determining bare-bones pricing, the reality is that some work is more highly valued than others. If you can demonstrate and communicate the true value of your work your multiplier might change somewhat (1.30, 1.40, etc). These formulas are not the be-all and end-all of pricing, they’re just helpful guidelines to get you thinking about the value of your work.
How do you determine pricing for your business? Please share your thoughts in the comments below!