How To Calculate Your Hourly Rate
How To Calculate Your Hourly Rate Update 1st July 2017: I’ve since discontinued this podcast and rebranded but you can still get the recording of this episode on Soundcloud, and you can still download the spreadsheet for calculating your own hourly rate below.
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How do you calculate your hourly rate? Just winging it maybe? Most small business owners do wing it, but you don’t have to. This week in Episode 017 you can learn how to calculate the hourly rate for your services. By compiling all your business costs into a special spreadsheet I’ve made for you, you can see exactly what you need to charge to run a sustainable business.
In This Episode
- Learn how to calculate the hourly rate specific to your business
Links Mentioned In The Show
How To Use The Hourly Rate Calculation Spreadsheet
Notes From The Show: How To Calculate Your Hourly Rate
Finding out exactly what you need to charge per hour for your services is one of the first things you need to do before starting in business.
If you have started in business already, stop and find out this number.
Having everyday knowledge of exactly what you need to make to break even and turn a profit is vital to succeeding in your business. It helps keep you on course.
But many of us take a different approach. We Google our services and check what other similar businesses are charging and we charge the same or less.
Crazy stuff I tells ya!
Every business is different right?
I mean, your cost of doing business is different from the next guy, right? Your staff costs, rent and local rates, your vehicle costs, professional fees and so on will be different.
So how is it that many of us come to the notion that copying another guy’s rates, or worse, charging less than the next guy is a good business decision?
Bad move.
I’ve got a means by which you can address this at the bottom of the article so read on…
A Personal Story About Hourly Rates
A good friend of mine who ran a maintenance business asked if I could help him with a technical problem in a building he serviced.
It was an access control system that needed a repair and he had no one capable who could service it. So knowing I was a bit of a nerd he called me.
Needless to say, although I hadn’t come across the system before I figured it out and solved the problem.
Next, I heard from him he was calling to complain about the bill. He was insistent he couldn’t pay it because he couldn’t get a margin on my rate.
“Not my problem really”, I thought to myself. My rate was what it was because I valued the ability I had to solve problems that others couldn’t.
There’s an inherent high value in that you see. Although there are plenty of people in the world who don’t want to pay you and me a high rate for that.
There Is No Competition Except What We Create
The primary concern of many big players is to get the highest possible service for the lowest possible price. But there’s an inherent problem with that and if you get caught it’s a race to the bottom.
Many of you wouldn’t agree with me when I say there is no competition other than the competition we create for ourselves. The common belief is that we need to compete on price because the market won’t pay above a certain level.
The reality is that if we hang out with buyers at the bottom of the ladder who have nothing more than pennies to pay us, then we’ll have to accept pennies or go hungry.
If we set out our stall with penny pricing, it will be impossible to suddenly increase that and expect our existing customers to continue buying.
However, if we recognise that we should set out our stall with a better quality product, a higher value product and attach a price accordingly we can build a customer base who are willing to pay.
The Problem Increasing Your Prices
For a long time I had done business with a friend, and for that time he was used to me charging a low rate. He operated by sourcing low-cost contractors and adding a margin.
We got volume for a while so I was willing to reduce my rate. A poor decision in hindsight, I’d do things differently these days.
However, I eventually pulled the pin because we stopped getting volume and when he came back to me on this occasion I had increased my rate.
He didn’t like it. In fact, he told me I’d price myself out of business. “Great,” I thought. “I don’t want that kind of business”.
So what do you do when faced with that kind of situation?
The answer is you do nothing. Why get into an argument and attempt to justify your rates to someone who doesn’t value your experience and quality?
Let the penny pinchers pinch pennies, you go find people who value what you bring and do work for them. Forget the rest.
You see when we set a rate we train our customers what to expect. If they see a big jump then they won’t like it and may leave you. However, sometimes that needs to be ok for your business to grow.
The best way to get the rate you need to run a profitable business is to start on the right foot. Charge a higher rate than everyone else, believe in it and stick to it.
Download this FREE out this hourly rate calculation spreadsheet to find yours.
Great post Larry! I always look forward to your “Knowledge Nuggets” Happy holidays! And Cheers to the New Year!
Same to you Sharon, have a great Christmas! thanks for stopping by.