How to determine your rate
Let’s talk about money. Because it’s 2018 and we’re allowed to do that now.
“How do I know what to charge?” It’s one of the most common questions I get from new, service-based entrepreneurs. And it’s most commonly asked at the tail end of a call with just seconds left to spare on the clock. It’s something they dread asking but know they can’t hang up without.
Talking about money is taboo on its own, but talking about how much you’re worth is truly tough stuff (at first).
First of all, there is no magic recipe for how much to charge. I’m simply going to walk you through my own thought process and the advice I give my clients today.
- Determine how much money you need to make annually.
This is your target annual salary. Always start with your need number. You can adjust towards your want number later. Your need number should be enough to cover your bills and obligations (rent, mortgage, groceries, gas, etc) with some additional cash to spend on things that make you feel happy and not poor. When I did this for myself, I swapped out my impulsive shopping funds for things that actually make me happy like travel and dining.
- Next, work backward from that target annual salary.
There are 2,000 hours in a work year, so divide your target annual salary by 2,000. This is your hourly rate. For example, if you want to earn $50,000 a year, you should charge $25.00/hour (2,000 x $25.00 = $50,000).
Now keep in mind — and this is critical — it is next to impossible to bill for 8 hours a day as a service-based business, or a freelancer. Most coaches, consultants, and freelancers I know are able to bill for 50% of their time. The other 50% is spent on other activities (looking for new business, administrative stuff, writing newsletters 😉, etc.). That means, if you still want to earn $50,000 a year, you’re now up to $50 an hour.
But wait! There’s more. Running a business costs money. You need to factor in your annual costs for things like office space, utilities, employees, design services, hardware, marketing materials, travel, and eventually things like savings and healthcare. Depending on your overhead costs, you’re now looking at $75-$100 an hour just for you to stay afloat.
For Part II, on charging PREMIUM PRICING, Click Here!