Monday, April 8, 2013

Pricing your services

Pricing your services is always an interesting process for people like ourselves.  You have to look at what your competitors are charging, of course, but here is a starting point to determine if your business is capable of earning enough income to support itself and you!

First you need to create an operating budget for the business which will tell you what your annual expenses will be.  Make sure you consider all the different things you will need in order to run the business.  Next determine how much money you will need personally to draw from the business.  If you don't have a personal budget, now is a good time to create it.  The amount you need the business to provide you with is your target income. 

Next you take the target income and divide it by the number of weeks in the year you will be working (if you are planning on taking time off for vacation and you are the only revenue generator for the business then take that into consideration) and then divide by the number of hours per week that you are going to be available to work on the revenue generating tasks.  Be aware that your business will also have non-revenue generating time needs as well (administrative tasks must be done as well) so be honest about how much time you will have each week to generate revenue.

Here is an example:  I need my business to earn $50,000 to support me and the business needs $13,000 to pay its expenses so my target income is $63,000.  I am not planning on taking any time off my first year of operations, but there will be holidays like Christmas and Thanksgiving so I will use 51 weeks as my available weeks.  I can work 10 hours a day so this start-up period and I anticipate that there will be a lot of administrative things I will need to do, such as writing a blog, networking, writing proposals, continuing education, answering emails, handling other social media, taking care of the business' accounting, etc.  I am leaving 6 hours a day for revenue generation for now.  That leaves me 1530 hours a year to generate income (6 hours a day x 5 days a week x 51 weeks in the year). 

Taking the $63,000 target income I need divided by the 1530 I have available, I need to charge $41.18 an hour to have the business earn enough to support itself and me.  I then will need to look at my competitors to see if this is reasonable.  If it is too high, perhaps starting a business such as this isn't right for me! 

1 comment:

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