You're just about ready to kick start your business and are feeling a little bit stuck in terms of knowing what to charge for your services.
Pricing your work isn't just about the numbers. Like most things, there's so much to consider and no doubt you'll have a million questions regarding how your charges are perceived in terms of the value of your work, your position in the market place amongst your competitors and most importantly ensuring your pricing can sustain you and your business for financial success.
Knowing how to price your products and services can be a tricky equation. Image courtesy of sxc.hu
So if you're seeking a pricing formula here are a few things you can consider:
Pricing for Products
This is the cost of each material directly associated with the production of your products.
Make sure to think beyond the obvious and include all the costs associated with the making of your product. For instance, don’t forget to include the tags, postage and packaging used to display your items.
Consider the time you have spent designing, creating, finishing and packaging your product.
Now you need to decide what you want to be paid for your time, keeping in mind the current minimum wage rate and how much training/qualifications your product requires to produce.
Overheads include all the costs associated with running your business that are not directly associated with the manufacture of your products. These items are costs such as internet/phone, electricity, rents, market stall fees, office supplies, etc.
Profit is the part of your price that is on top of your overheads, materials and labour that allows you to grow your business. Keep in mind that labour charges are not always profit.
Working out how to add a portion of your overheads into each product can be a little tricky but if you work out your monthly overhead expenses and divide that by the total number of hours you spend each month producing products you should be able to come up with an hourly burn rate.
This rate is effectively how much you spend on overheads each hour while you are producing items to sell. Your overhead per piece is then that rte multiplied by the number of hours it takes you to make that item.
Pricing products for sale means you need to calculate your overhead costs, labour and profit. Image credit: Sxc.hu
EXAMPLE: If your monthly overhead expenses come to $600 and you are producing products for 64 hours a month. Your rate would equal $9.375. If you have an item that take 4 hours to make you overheads for that item would $9.375 x 4 = $37.50
Pricing your Services
There are two main ways to charge for services; Flat Rates and Hourly Rates.
Working out a flat rate means you'll need to work out an average amount of time it takes to complete certain 'jobs' and charge based on this. Designing a website might take anywhere between a few weeks or months depending on the client and complexity, but you might average around a certain number of hours and average it out.
Flat rates make things straightforward and easy for clients to understand and the process is very black and white, they know your prices outright, and there are usually no surprises.
On the contrary, hourly rates vary based on how long you’ve spent working on a specific project. It’s important to keep a record of the time you’ve spent working on a project, and on the upside, you get compensated for the extra time you’ve spent working on changes and revisions.
Use whichever system feels right to you and which suits your project or service better.
In terms of how to decide on prices for your services it is just as important to go through the equations above. The overheads might be bigger, the labour might be bigger while the materials are small, or non-existent. That’s ok – the process should be the same.
Work out what you want to be paid per hour for your labour, add in your overhead costs and your materials. Then add on your profit.
Whatever you choose, typically it's all about the math and knowing what your time and skills are worth.