Know that magic feeling that surges through you when you’ve triumphed and created something absolutely brilliant? Well, you’ll get that exact same hit of happiness by creating the perfect pricing structure for your business because it’ll make your business hum and a humming business means less money worries, more toysand becoming a hero by helping our limping little economy grow.
To get your pricing spot on the first thing you need to do is completely ignore the hourly rate you were paid working for someone else. If you don’t get this out of your head then you might as well stay in your job as you’ll definitely be taking a pay cut because your prices need to cover so much more than just your time. Take a few seconds to list what you expect the obvious stuff to cost you over the next year like training, computers and software. Then dig a little deeper and add in things like the cost of running your car, internet and phone. The ugly stuff is up next because you’ll need to allow for Insurance, Accident Compensation levies, Tax and the biggest slap in the face of all which is Bad-Debts (yes, those nasty people that won’t ever pay you for all your hard work).
Armed with your list chances are that you’ll already be starting to think smarter so take a deep breath and do a little maths by adding it up to see what it’s going to cost you to run your business. Now it’s time for the fun number; add in what you actually want to earn. And finally, if you’re going to charge an hourly rate then simply divide the total by the number of hours you intend to work for clients. You might like to aim for around 1200 to 1500 hours a year because although you’ll clock up far more hours it’s unlikely you’ll be able to charge them all. And so there you go; you’ve got your hourly rate sorted and rearing to go! Well done.
PS. If a little example helps, then let’s say your total costs are around $20,000 and you want to earn $80,000 so you’ll divide $100,000 by 1200 hours to get an hourly rate of $83. Obviously an hourly rate isn’t the only way to charge and there are lots of business models out there to consider which we’re always more than happy to give you the lowdown on.
Wendy Simpson is an senior accountant with Boutique Financial. As well as a fully qualified accountant, Wendy is a keen accounting commentator and blogger. Boutique Financial have great experience helping creatives with advice and accounting to find out more visit them here.
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