Make the Most Profit by Pricing Rightby Caitlin Snow December 4th, 2018
One of the most important and most difficult aspects of being an independent contractor is deciding how to price your services. If you’ve decided to charge hourly, as opposed to project-based, then the next big question is how much to charge per hour.
Naturally, to get the basic idea for your minimum acceptable fee, you need to start by assessing your costs and dividing them by the number of hours you want to or can work. Then you need to decide what kind of lifestyle you want to lead, and therefore how much profit you need to turn. There are lots of calculators online to help you work this out.
But it’s easy to miss things or end up hurting your business unintentionally. So, here are a few things to keep in mind when you are setting your hourly rate and pricing jobs.
1. Don’t forget ALL your overhead
Overhead is any expenses associated with the general operation of your business. Of course, this includes all the basics: your shop, tools, vehicle, advertising costs, etc. Overhead also includes annual expenses, life insurance, health care, workers’ compensation and taxes.
Failing to understand all of the overhead costs associated with your business overall and with individual jobs can cost you big over the course of the year.
2. Check out the competition
It’s all fine and good to do a calculation and pick a number. But you need to determine if the number you’ve picked is viable in the marketplace. Prices for services vary by area and by demand. You need to assess what others are changing and what clients are willing to pay.
Keep in mind that breaking into a relatively closed market can be challenging. It’s possible that you’ll need to start on the lower range of fees; your fee can increase as you gain more experience and build a trusting client base.
You can talk to other independent contractors in your area (either face-to-face or online) and see what companies in your area pay employees who do similar work to yours. You’ll probably need to play with your fee as you start out and see how the market responds.
3. Be flexible
Even if you’ve set a rate, remember that nothing is a hundred percent. Sometimes a job may call for a flat fee. If a job is far away but will only take an hour or two, you may want to consider a higher hourly rate to compensate for your travel time and costs. A more complex project may force you to quote and leave it open ended.
Whatever you decide, stick to your guns and remember your value.
Which leads us to…
4. Don’t undersell yourself.
You have value. While you’re checking out the marketplace, remember that your work isn’t identical to other contractors in your area, or even those in your field. If you have a lot of experience or expertise in a particular service, don’t be afraid to charge for them and defend yourself if you’re questioned.
If you’ve done the calculations and decided on a figure, but feel nervous asking for that amount, ask yourself why? Is it fear of overcharging? You don’t feel it’s fair? That could be, but more likely, you’re just undervaluing yourself and the services your provide.
Undercharging can not only cost you money on individuals jobs, it can devalue your company by making you seem “budget” or “cheap.” That can affect your business in the long term.
5. Feel comfortable walking away
If you set a number and believe that number is fair and justifiable based on your experience and other qualifications, stick to your guns. If a potential client questions your fee, explain your thought process. If the client continues whinging, don’t be afraid to walk away.
A customer that is focused on price over quality is almost inevitably going to cause you a headache and cost you more then the job is even worth. The client isn’t always right and when they’re wrong it can be a real disaster for you.
Learn from the mistakes of others. When you ignore common sense or fail to understand your own insurance policy, things can go sideways pretty quickly.
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