There are a lot of “How to Build a Business” sites and programs out there online. But if you offer a service like photography, videography, design or anything else that exchanges skill for money, there isn’t much out there for us. I mean, some of us can’t take the passive income route with what they have to offer.
As someone who does service based work (Nicole and I still do video work for select clients) and teaches business for a living, I think I should do something about this lack of information. So in the coming weeks, I’m going to be writing a series of posts dedicated to those who want to build and grow a service based business.
For the first post of the series, let’s tackle a question many struggle with- How do I set my rates? I mean really, there is no hard and fast rule about this and no real direction on where to begin.
Am I too expensive? Am I undercutting myself? I’m just getting started, what am I worth? All valid questions and let’s be honest, the idea of being a starving artist isn’t appealing. We all need to pay the bills.
So how do you set a service rate? There are some intricate and confusing ways to this but let’s stick to 2 basic ways that work. Those 2 methods are:
1. Using a market rate
2. Using a “need to make” rate (I made that up. You like?)
Let’s break down what each one means and how to go about figuring out your rate using each method.
1. Using a market rate.
Look at another business that has similar services and experience as you and use a similar rate. A rate can be an hourly rate or a set of prices for service packages.
Not sure where to find businesses with similar services? Take a look at the comments on websites you frequent in your industry. Take a look at the comments in the posts. Click through on some of the names of those who comment and check out their websites. Join forums in your niche and get to know fellow service business builders.
Here is a little exercise to help you get started on figuring out your rate using the market rate method.
List 3 businesses similar to yours and note down their rates/ packages. Rank them from highest to lowest rates. Where would you fit on this list?
2. Using a “need to make” rate.
We all need to eat. So lets figure out how much it costs to do so : ). Seriously though, we all have personal expenses we need to take care of in order to live. If you are offering your service full-time then you’ll need to cover those expenses and your rates will play an important role.
Follow the following steps to know how to set your rates using the “need to make” method.
Step 1: How many hours can you dedicate to your service business every week? Divide that by two. Half of your time will be spent on actually running, marketing and building your business. The other half will be dedicated to your actual service work.
Step 2: How much money do you need to make a week to cover your personal expenses? Everyone is different. Your weekly number may be $1000, $800, $500.
Step 3: Take your weekly amount of money needed and divide it by the number of service work hours a week. That’s your hourly rate.
For example: $1000 / 25 hours = $40 per hour
This isn’t an exact science but it does give you a pretty close idea of how much you need to charge. It’s always safer to lean on the higher side to be safe with this method. So with the example above, I would set my rate to $45 an hour to be safe.
Whatever rate you set for yourself, know that it’s only the start. Setting your rates is not a one-time only exercise. Your rates should always be increasing as your experience and skills increase.
If you are doing this full-time, you should be revisiting your rates every 3 months for the first year and then every 6 months the years after that. If you are doing this on the side but picking up at least one client a month then I recommend revisiting your rates every 6 months.
That’s pretty much it! I hope you found this helpful. Either way, please let me know. The best way to do that is to tweet at me @bizrepublic. I’d love your feedback as I continue to write for this series. Until the next post, YOU GOT THIS!
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