How Much Should You Charge for Your Service?
by
Attorney Stephen Fishman
How to price your services to attract business and make a profit.
Independent contractors (ICs) can charge for their services in a variety of ways, such as a fixed amount for an entire project, an hourly fee, or a sales commission.
No matter how you bill clients, however, you first need to figure out how much to charge per hour -- even if you charge a fixed fee for the whole project. You can't determine how much your fixed fee should be unless you know roughly how many hours the job will take and what you need to earn per hour to make it worth your while.
If you're experienced in your field, you probably already know what to charge because you are familiar with market conditions. However, if you're just starting out, you may have no idea what you can or should charge. If you're in this boat, try using a two-step approach to determine your hourly rate:
- Calculate what your rate should be based on your expenses.
- Investigate the marketplace to see if you should adjust your rate up or down.
Calculate Your Hourly Rate
Business schools teach a standard formula for determining an hourly rate: Add together your labor and overhead costs, add the profit you want to earn, then divide the total by your hours worked. This is the minimum you must charge to pay your expenses, pay yourself a salary, and earn a profit. Depending on market conditions, you may be able to charge more for your services -- or you might have to get by on less.
To determine how much your labor is worth, pick a figure for your annual salary. This can be what you earned for doing similar work when you were an employee, what other employees earn for similar work, or how much you'd like to earn (as long as your goal is reasonable).
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