Mr. Marketing: Making sure you get paid
How much should I charge hourly?
Business owners have an easy rule for how they get paid. First everyone else gets theirs: landlord, suppliers, taxes, etc. You get whatever’s left.
Since you’re now an independent consultant, I suggest this exercise for determining how much you should charge and, ultimately, gross in your practice.
Let’s say you want to end up with $100,000 per year from your consulting business. Here’s the math:
•There are 52 weeks each year. Set two aside for vacation or family time.
•Recognize that each week has exactly 168 hours. Sleeping, family meals, walking the dog, having a date with your spouse, watching TV — all come from that budget.
•Assuming you work 40 hours each week, you’ll have 2,000 billable hours annually.
•Almost every business, large or small, needs to subcontract some services or a portion of its manufacturing from time to time. You may need computer equipment, software, office furniture or legal pads. Budget for travel expenses, rent and utilities. You may also need to entertain clients periodically. For now figure $40,000 per year for these, combined.
•Next add in taxes, licenses, permits, insurance and professional services you’ll be hiring (accountants, lawyers, marketing, etc.). For discussion’s sake let’s figure you need around $180,000, total. Divided by the 2,000 hours you’re working, I figure you’re charging $90/hour.
BUT WAIT! This assumes eight hours each day are billable. You’re going to have some unbillable time — travel, networking events, writing press releases, etc. Assume a 25 percent loss of time.
Translated: You’re billing 1,500 hours per year (30 hours times 50 weeks). Now you’ll charge an average hourly rate of $120 to generate $180,000.
If this equation seems complicated, just multiply how many hours you’re willing to work by how much you can reasonably charge for your services to arrive at anticipated earnings.
Not enough? Better plan to work more billable hours, raise your hourly rate, or find something extra (software, books, music, etc.) that profits you without taking much effort.
And remember this — being your own boss sounds romantic. Certainly it’s exhilarating. But it can also be very stressful, and is definitely NOT for everyone.
With that said, I wish you a week of profitable marketing.
Mr. Marketing has spent 30 years developing pricing strategies for different businesses. Send him your questions at www.askmrmarketing.com.
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