Are you charging enough for your services?
If you’re a solo business owner in a service based industry, have you ever stopped to consider why you charge the amount that you do? How did you arrive at that figure? Financial Fundamentals can help!
When you started your business, you needed to have an amount that you would charge your customers.
Did you ask around your industry to see what other people were charging? And then, if you did that, did you charge the same or did you under-cut their price by a few dollars in order to give you a better competitive edge? Are you charging enough for your services?
Perhaps you had an idea of what you were worth and used that figure? Let’s face it – before you started working for yourself, your old boss paid you a certain amount and you always thought you were worth more, didn’t you?
Or maybe you used a formula like this one –
All Your Yearly Expenses (business and living costs, superannuation, rent, insurances, healthcare etc) + 20% profit margin = Your Needed Income.
Billable Hours per week (say 5 to 6 per day) x 234 Working Days per year (excludes public holidays and Sundays) = Your Billable Hours
Your Needed Income = Your Hourly Rate
Your Billable Hours
That’s not a bad formula, although I wonder why you wouldn’t have eight billable hours in a day – wouldn’t you work that hard in your own business? And in reality, although it’s a nice thought, you probably don’t take all the Public holidays and every Sunday off either.
In getting back to basics when it comes to costing, the things we really need to focus on are our expenses.
If you do some research about the business you’re about to start, you’d have a fair idea of what it will cost to set it up. Your research should also give you a rough idea of what it will cost to keep your business running.
If you charge too much, you won’t have any customers and you’ll have to shut the doors. But by the same token, if you charge too little you’re in danger of going broke also. Are you charging enough for your services?
Of course, you will also need to get paid. But how much is the question? Too many start-up business owners forget about their wages, preferring instead to plough all their profits back into the new business. This means that they’re living off credit or savings. These funds will soon dry up if they’re not replenished and is one of the major reasons that small business find it hard to survive past the first year or two.
In the early days of your business you should be aiming at the very least, to cover the costs of running your household on a weekly basis.
A well prepared budget for your home will go a long way in determining just how much you need to earn each week. And how much you need to bring home will determine not just how many hours you need to work, but also how much you need to charge.
It’s ludicrous to charge $50 per hour because that seems to be the ‘industry average’ if your household needs $60 an hour to cover its costs.
On the flip side, you may be able to charge less than everybody else if your home is able to run on less money.
So if you seem to be struggling with cash flow and making ends meet, maybe it’s time to do some basic home money management. There is simply no point in working for yourself if you can’t afford to keep the home fires burning.
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Written by guest contributor:
© Carmel McCartin
And don’t forget – (The views expressed in this post are the personal opinions of the author. Don’t rely on them to make financial decisions; you have to make up your own mind. If you don’t like the content – then either stop reading or send me an email)