The good news is that this starts out pretty simple as you are essentially selling time. If you are a freelancer or sole consultant easier still because you are selling your time!.
Pricing your time: start out by answering two questions:
1. How much would you like to earn in a year?
2. How many billable days do you think there are in a year?
Lets take an example, lets assume you want to earn £50,000 and that there are 100 billable days in the year. Divide £50k/100 = £500/day.
NB don’t overestimate how many billable days there are in the year otherwise you’ll underprice yourself and end up running around like a lunatic. After all if you can sell 100 days at a good daily rate you can spend more time on the beach and enjoying the results of your hard work. It rarely pays to be too cheap … you may not be considered credible if you are.
100 billable days equates to about 2 days a week which leaves you 3 days to pitch for work, have introductory meetings and do admin.
Lets consider a few other things:
1. What level of expenses will be involved in winning business?
2. What percentage of jobs that you pitch for will you win?
3. How much time will you have to give away before you win business?
4. How much time will you have to spend managing contracts and other people?
You will therefore have to add in both time and costs afterall if you turnover £50k this will not all end up as income to you! You may of course be charging expenses to clients as an additional rather than within the cost of your services … this is up to you and may well depend on whether clients are buying a ‘package’ of pre-defined services (in which case you should probably take account of all expenses in the price of the package) or whether you are selling consultancy.
Conclusion: If you want £50k as your taxable income then your turnover will be more like £60-75k.
“That’s all very well but how does the rate I want to charge compare to market rates for my sorts of services?”
Fair point, well made. Here are a couple of things to think about.
– If you are billing time (ie consultancy or freelance) then you will probably end up with a range. So your preferred rate may be £500 a day for your most innovative & demanding work but you might take on work at lesser rates if it gives you stability, regular income or is in some way ‘standardised’ rather than bespoke. So when you start your range might be between £150 – £500/day. The trick is not to take too much work at the lower end of your range when you are busy but not to burn your bridges at the bottom end so that you can take it when times are quiet and you need the income. Equally you want to move your range upwards over the years so that five years in it’s shifted from £150-500 to £300-700 for example.
– If you sell pre-defined services or packages of services then you do need to know how your prices compare to competitors afterall we all know what happens when we notice that we’re paying above the odds for a phone contract … we shift to another supplier unless we are very clear about the added value that our current supplier offers.
– Why would you package up your services? Well customers will be clearer about what they get for the price and there’s less risk of you over-delivering against your commitments. It is often easier to buy a defined package than a more nebulous and open ended bespoke service. Plus it means that once you’ve defined the service you can offer it time and again without having to re-invent the wheel … this has the benefit of being more efficient. It depends in part on what the market is used to buying and in part how you want to operate.
– Is there a difference between your newest, most innovative & exciting work and your standard stuff? The latter is absolutely the stuff you’ll package up, the former is your bespoke stuff.
So, now that you’ve worked out what you’d like to earn in a year and started thinking about bespoke vs. standard services and how the prices in your range will differ next you should think about what constitutes a small, medium or large project/job/contract.