How Much Are You Worth?
It has been estimated that there are over 20 million home-based businesses in the U.S. today. Whatever the number is, it's growing, and many of them sell personal services rather than a tangible product. Consultants of all types, desktop publishers, and website developers, just to name a few. How do they establish a price for their work? Unfortunately, they often do it poorly.
If you sell a product it's not that difficult to know how much to charge. You begin with your cost and calculate your price based on the margin you are using. Actually, it's not quite that simple. There are several other issues. Are you going for high volume, low margin, and marginal service, or lower volume, higher margin, and a high level of customer support. Many industries have margin standards to use as a guide. And we can't leave out demand and competition, the harness-mates pulling that ever present market phenomenon, "what the market will bear." I'm not saying it's easy to price a tangible product, but it is typically easier than pricing a service.
Beverley Williams knows all about pricing personal services. She was a home-based desktop publisher prior to founding the American Association of Home-Based Businesses (AAHBB). If you've listened to my show for any length of time you know Beverley. She is one of our most dedicated Brain Trust Leaders. She and I have talked about this issue of pricing your personal services on my show.
Beverley says, "when you are putting your pricing together, don't look back." She means don't think about how much you made per hour or per week at your last job. That amount and the one you should be charging your clients are totally unrelated. Here are some reasons why.
When you work full time you are assured of being paid for at least 40 hours. Hopefully, you make enough to provide for the needs of your household. But other than those living expenses, your savings, investments, and extravagances, your take-home pay is net to you. Unlike an employee, as a personal services business owner you are not likely to be able to bill 40 hours a week, especially in the early stages of your business. Here are some of the reasons...
Why you charge more than an employee.
1. When your business is new, you will be lucky to have prospects to talk to at first, let alone paying customers. But don't worry. Your prospecting will pay off soon.
2. You can't bill for your service every day from 8-5 because, even if your business is going well, you still have to prospect, deliver proposals, and provide initial interviews with prospects that, at least an hour of which, you may choose not to bill for.
3. And of course, there is all the other stuff that every business owner must do. Networking, planning, administration, the list is long. Sure, you can do a lot of this at night, and on weekends, but not everything.
4. When you own a business that delivers personal services, and when the only delivery person is you, you are a 100% extension of yourself. In this case, your only income leverage options are to work more hours, or charge more per hour or per project.
By now you should be getting the mathematical picture that you may not be able to bill 40 hours each week. You now understand why you have to charge your clients more than you charged your last employer. And we haven't even talked about the fact that, unlike your net take-home pay as an employee, your receipts as a consultant must first go to pay the expenses of your business, and then to you and your family.
I know, you want to know how much. OK, I'll put a point on this pencil, but not to give you your pricing. I don't know how much you should charge. I want to dramatize the ratio. Here goes: If you made $15 an hour as an employee, as a personal services provider, you probably should charge $45 to $60 an hour. This is where you may be saying, "Who's going to pay me $45 an hour?" The answer is nobody, if you have that attitude.
Beverley says don't let your lack of confidence cause you to underprice your services. And don't underestimate what you represent to your clients. Beverley also warns home-based business owners who provide personal services that some prospects will think that, since you work out of your home, you don't have any expenses. She says to remember that you are charging for your expertise, not your location.
I've told you some of the reasons why you should charge more, now I'll tell you...
Why you are worth more.
1. You know how to do things your clients don't.
2. You know how to do things your clients don't have time to do themselves, even if they knew how.
3. Your clients don't have to adopt you, they rent you. And then send you home when your work is delivered.
Take a lesson from the rental industry. A rental car costs $50 a day. That works out to $1500 a month for a car that you could own for $350 a month. But you didn't think of it like that when you rent a car, do you? You had a special need, the rental company delivered the product and provided a valuable service just in time, and you gave it back when you were finished. No muss, no fuss. Just like when a company rents you.
Write this on a rock... When you price your personal services, think like a rental car company.
