How To Realistically Set Your Fees -- OnlineOrganizing.com

You Are Here: Home - Newsletters - "Organized For A Living" - Article

	How To Realistically Set Your Fees

	by Chuck and Sue DeFiore

We all know there are 52 weeks in a year and 40 working hours in a week. Therefore, we can bill 2080 HOURS per year, right? Wrong. Too often this is the trap that many new service businesses fall into.

WHAT IS YOUR WORK YEAR?

The first step in calculating your billable hours is to define a realistic working year. If you were employed elsewhere, you would expect or want at least two weeks VACATION time, one week SICK time, one week personal time and paid HOLIDAYS. So, where does that leave us -- 52 weeks minus four weeks leaves 48 weeks minus about 10 paid holidays, or a total of approximately 46 weeks per year. Okay, you say, that means I can still bill for 46 weeks times 40 hours per week or 1840 hours per year. If I charge $25 per hour that comes to $46,000. Not bad, that is more than I was making on my previous job. Wrong.

WHAT ELSE DO YOU SPEND TIME ON?

What you have just established is a realistic working year, not the number of BILLABLE hours. You still need to account for marketing time, bookkeeping time, administrative time, equipment maintenance, continuing education, etc. You also need to calculate in equivalent time for self-employment TAXES, local business taxes, etc. In many locales, this can add up to an additional 20% or so in time or money.

IT ADDS UP

Let’s assume approximately ONE HOUR per day for marketing and one hour per day for administrative duties (and this is a very conservative estimate). 46 weeks times 5 days per week equals 230 days at 2 hours per day equals 460 hours, subtracted from 1840 -- for billable time left in a year of 1380 hours. Now subtract approximately 20% for the above taxes or 276 hours and that leaves you with 1104 billable hours in a year. And this may still be high, but at this point, you can see to earn that $46,000 per year you will need to charge $46,000 divided by 1104 hours or about $42 per hour.

WHAT ABOUT BUSINESS EXPENSES?

Everyday expenses are part of doing business, and these must be reflected in the prices you charge or you will not be in business for long. Expenses to consider are possible rent for office space, an increase in UTILITIES -- such as gas and electric -- over your regular household bills if you work at home, telephone costs, postage, copying costs, stationery, office SUPPLIES, subscriptions and possibly, membership dues. You will also need to make periodic upgrades to your office EQUIPMENT and furniture -- items such as computer hardware and software, fax machine, copier, filing cabinets, telephone headsets, etc. All of these items add to the hourly rate you charge for your services. You must have a good estimate of what these costs total each year or you will end up cheating yourself. If you do cheat yourself, you are going to drastically increase your stress levels and lose much of the enjoyment of running your own business.

AN EXAMPLE

Let's plug some numbers into our costs and see how they affect our hourly rate.:

Rent $600 per month x 12 = $7200
Utilities $100 per month x 12= 1200
Telephone $100 per month x 12 = 1200
Postage $100 per month x 12= 1200
Copying $50 per month x 12 = 600
Stationery $25 per month x 12 = 300
Supplies $50 per month x 12 = 600
Upgrades $150 per month x 12 = 1800
Furniture $50 per month x 12 = 600

YEARLY TOTAL = $15,300

The yearly total comes to $15,300, divide this by 1100 billable hours and you get approximately $14 per hour. Now add this to the original $42 per hour and you can see that you need to charge $56 per hour to cover your hoped for $46,000 per year income plus your expenses. If you are home-based, you can subtract the $7200 per year in rent or about $6.50 per hour from the $56 above. And that’s not even counting any BENEFITS you hope to give yourself -- health insurance, disability, or a retirement plan. Remember to figure these costs in if you plan to provide these items through your business.

DON’T BE ASHAMED OF YOUR FEES

Remember, in order to be fair with yourself and your customers, your prices must reflect the TRUE cost of doing business. Do not ever apologize for your prices. You need to charge enough for you to live on and enough to stay in business to service the clients that have come to depend upon you. If some of your customers can't understand this, change your CUSTOMERS, not your prices.

DeFiore Enterprises has been "Helping Folks Start Successful Home-Based Businesses For Over 16 Years". Visit the website at www.homebusinesssolutions.com. To Subscribe to Home Business Solutions E-Zine, send an email to subscribeHBS@homebusinesssolutions.com.

Would you like to reprint this article in your publication -- or distribute it to a wider audience? Click here for reprinting instructions.

Want to receive these kind of articles via e-mail each month? Sign up for a free newsletter subscription.

Click here to return to "Organized For A Living" -- April 2001...