Setting Your Hourly Rate

This is a subject that’s sure to come up when you started your business, and it’s not one-size-fits-all. Nothing really is, after all, is it? For a service business, setting the right rate is vital, even if it isn’t always easy.

There’s a trick to pricing your services, and that is, it needs to be a price you’re a) happy with, b) that you can earn a living with, and c) one that your customers will pay. If you’re not happy with it, you’ll begrudge your customers the time you give them. If you can’t earn a living with it, what use is it? You might as well give away your services. And if your clients won’t pay it, you’re right back to not being able to earn a living.

Rates will vary based on geographical region, services, ego, experience, qualifications, your clients/customers, and a host of other factors. You may have been told to find out what others charge for the same service. This may work, and it may not. Many of us don’t give out our rates when someone we don’t know calls – you may have also been told not to do that yourself, to talk to the client about what they need before you start discussing rates so you don’t scare them off right away.

A bit of a Catch-22 there.

Also, you really can’t base your rates on what someone else charges. Some time ago, after I’d moved to a new area, I met someone who was doing the same work I was. We had lunch and talked about our rates. Hers were twenty an hour less than mine, and she told me I’d have to reduce my rates in order to get any work in this area. I thanked her for the advice and left my rates right where they were. I wouldn’t have been happy with a lower rate, and I know the value of my work.

Since then, many others have said my rates are just fine, among them CPA’s and clients.

One thing to keep in mind is that there will always be someone cheaper than you. But is this your competition? Only you can decide that. There will also be people charging more. What matters is what you need to earn for your business to be successful.

You may look at salary guides, but that doesn’t tell you what rate to charge. What it does tell you is what the going rate is for that position, if you were an employee. You’re not. You can’t build a business on employee wages. You have to pay your own taxes, provide your own equipment and office space, and you have to provide your own benefits. Of course, there are advantages to businesses to go with an independent contractor instead, which you may need to point out to them. The clients don’t always come to us pre-educated.

A good way to get a starting point for your rate is to think about what you need your annual income to be, net of taxes and expenses. Then add taxes and expenses. This is the part a lot of new business owners neglect to do. That’s the minimum you need to make, right?

Look at how many billable hours you can expect in a week. If you want to work a 40 hour week, you won’t have 40 billable hours. This is a business now, and someone has to do all the work that goes into running a business too.

So how much do you need to make an hour?

Look at your qualifications and experience. Do you think you’re worth that hourly rate? If not, you need to work on your ego (or, to be politically correct, self-esteem), or find out how to be worth it. If you’re think you should make more, charge more. Don’t worry about losing clients over it – the price shoppers will always be less concerned about service and more concerned about financial cost. They’ll spend so much time searching for the cheapest option that their businesses will flounder. And do you want to spend time on a business like that? (There is also truth to the rumor that you get what you pay for.)

Setting your hourly rate is a lot less about what other people are charging than it is about you getting what you need and want to be successful. If you’re good and can give clients the service they crave, you’ll do fine, no matter what your rate is.