Set your price to include time spent on prep work, your professional development, and the cost of your availability to show up, and it guarantees you have all the ingredients in the packaging & pricing recipe.
Every good recipe can be tweaked and improved. But remove any ingredient, and you’ll have a completely different dish. Take chocolate cake, for instance. Use baking soda instead of baking powder, and you’ll get brownies. Sure, it’s still delicious, but not what you aimed to create. The same can be said for what you put into your business. Remove or change one part of your process, and the result could look quite different. If you can’t pay for the sitter this week, it might mean you’re working from home with a screaming toddler and five days of client meetings shuffle into next week. What if we take away your trade magazine subscription? Now you’re no longer up to date on the latest trends in your field, leaving you and your clients lagging behind the competition.
When you set your price, more than the cost of your product or time spent 1:1 with a client should factor into your service fee.
Behind the scenes
Besides overhead costs (utilities, legal fees, travel, etc.), take into consideration the multitude of tasks behind doing the work – those non-billable actions:
- time creating and maintaining systems to keep your business running
- cost of services used to maintain your business (CRM, payments, email, video conferencing, etc.)
- time spent writing emails or reports
- time on phone calls/video conferences
- cost of training/education – professional development ensures you are well-versed in all things relating to your clients, customers, and trade
- time spent on client research or research on behalf of a client
Profit from your availability
No one starts a business or quits their 9-to-5 to work for free. Your time surely isn’t. When you have to find the time, mental space, and (for some) childcare to work, your profit margin begins to matter. Determine how to set your price and what it will take to cover your availability. After paying for your business, what necessities must you maintain to be available in your day-to-day? Consider:
- childcare – the peace of mind to focus on your work knowing that your child is well cared for
- vacation – stave off entrepreneur burnout by setting a vacation goal early
Add to the equation
Salary: Your salary is based on previous or current pay, what you want to be paid, or the current market rate.
Overhead: The annual cost of running your business. Includes utilities, office supplies, equipment, professional development, professional services (i.e., labor, legal, marketing, accounting, and the like), rent, etc.
Profit Margin: How much money do you wish to earn after paying the cost of running your business? The PM is a percentage (between 10 and 20 percent) of your salary + overhead. To determine your percentage, look at your time away from home, skills, and years of experience. The more experience you have (in your field), the higher the percentage.
The equation ((Salary + Overhead) x Profit Margin)
Example: You are going independent and leaving a $150,000 salary. Your overhead is around $15,000 for the year. Based on your skill level and home needs, you decide that your profit margin will be 15%. Enough to cover your bills, childcare, a vacation, and your Self-Care Sundays.
Salary $150,000 + Overhead $15,000 = $165,000
$165,000 x Profit Margin 15% = $24,750
$165,000 + $24,750 = $189,750
As a solopreneur, in addition to serving your clients, you’d be the accountant, client manager, marketing executive, and student (to keep your skills up to date). In a 40-hour work week, you will likely spend a quarter of your time on non-billable activities. Deducting 10 hours per week brings billable hours to 30 per week. Don’t forget that you’ll want a vacation at least once per year, leaving 50 weeks of billable time, or 1500 billable hours.
$189,7500 ÷ 1500 = $126.50 per hour
Round up to $127 per hour = $190,500 per year
With an estimate of your hourly rate, you can choose your billing style: Hourly, Package, or Project (Flat rate).
Hourly is the simplest as you can package hours and charge accordingly. Some service providers even offer a discount for purchasing more hours at a time.
Tip: Put an expiration date on hourly packages to avoid clients buying a package in January and then attempting to claim your time in October. It is common practice to have quotes expire after 30 days to both invent clients to start working as well as keep you from overextending your time.
Package rates include bundling services together that complement each other (i.e., content, copy, and graphic design). Once you’ve tested how long each task will take, multiply that by your hourly rate.
Package Price = Service x Time x Hourly Rate
Tip: Offer a low-, mid-, and premium package. Most will purchase your mid-range so make this your signature package.
Project or Flat rate allows you to charge based on everything that goes into delivering on a specific project. The fee for your services depends on the project itself – customizing it for each client. This package is often used as a premium or high-end offer. It allows more flexibility as your bill is for the final product or service instead of time tracked. Based on your skill level and deliverability, when and what you deliver as the final product determines the worth of said package. Again, how you set your price for a project can be different for each client.
How to handle when a client can’t afford you
Not every client is for you. Nor are you for every client. Sometimes there is a chemistry mismatch. Sometimes it is a budget issue. How do you handle securing the client without sacrificing what your time and energy are worth?
Example: Michelle offers client management for $900 per month. It includes a 90-minute strategy session, set up of the CRM system, daily management, five custom workflows/automation, and weekly 20-minute check-ins. Richard feels Michelle would be the perfect contractor to hire but only has a budget of $750.
- Service reduction – Based on the client’s needs and budget, Michelle could create a custom package or offering by reducing what services she includes in her package. This is called reducing the scope of work. Removing a few nonessential elements could reduce the amount of time spent with the client but still deliver what their company needs.
- A la carte – Michelle could offer Richard a list of services and their cost, allowing the clients to pick and choose which services they want to receive.
- Phased – Separate the project into phases so the client can prioritize certain services over time, i.e., extend the project timeline to allow for more flexible payment options.
It is always good to leave room to revisit the package later. Within a few months of working together, you should be able to gauge the right time to offer the original package again. After all, you aim to offer services that help your client’s bottom line.
How will you set your price without diminishing your worth?
With this robust recipe, you should be able to create tasty packages over and over again. As with any recipe, you can dabble with it to make it your own. Add a dash of in-kind services. Remove a helping for taxes. Double the recipe for groups or corporate. Just remember all the ingredients that go into running a successful business and to save a little dessert for yourself!
If you need help understanding your finances, grab a seat in the Afro Business Cookhouse. If you’re looking to research how others have come up with their pricing, don’t be afraid to ask in the She Run It Facebook group.
See you in the comments!