Setting prices can bring up a lot of feelings for some people around their worth and their fear of asking for too much, and a common trap we see at Dollars + Sense is that freelancers price themselves too low and risk running at a loss or never getting ahead.
Of course, you want to be competitive and you want to win projects, but it’s also important that you don’t end up in an exhausting spiral of working overtime and resenting the endless hours of work you do just so you can break even.
But if you take a step back and let your figures work for you, you can remove the emotions and work out your rates using basic mathematics, and remove the emotion from the process entirely.
If you’re just starting out, you might think it’s a good idea to make your hourly rate around the same as what you were making as an employee, but any bookkeeping service for small business will tell you this is a big mistake, and almost certainly will not lead to a profitable business.
Why? Because that hourly or daily rate doesn’t take into account all of the expenses that were being absorbed by your employer.
- annual and sick leave
- equipment and stationery
- internet, phone and electricity
- rent and utilities
- professional development
- other potential expenses related to your industry.
It’s quite a long list! It adds up, and it needs to be covered by the money you are bringing into your business.
Figuring out what you need to do to become a highly profitable business is something your bookkeeper can help with. If you’ve been running for a while, it’s a simple matter of looking at your cash flow projection, or profit and loss statements.
If your operating expenses are, say, $6000 per month, and you’re only charging out $5000, there is clearly an issue there we need to address because we want you making more than your operating costs so you are turning a profit!
From here, we can work backwards, calculating how much extra money you need to make per month, and dividing it by the number of billable hours you’re putting in.
So let’s say you want to make another $5000 per month, for a total of $10,000 (and a profit of $4000), and you work 30 billable hours each week: you’d need to be charging an hourly rate of around $80 an hour.
If you’re just starting out and don’t have those kinds of figures yet, you can Google what your expenses might be, or your bookkeeper can help you project those figures.
Either way, it’s easier than you think to start charging what you’re worth, and get out of the overwork cycle. It just takes less emotion, more maths and perhaps a helping hand from a dedicated bookkeeping service.