How to Calculate Your Fees
When you sell services, for example if you have a consulting business, you need to calculate your fees. What a challenge! Because it is connected with so many practical and emotional aspects: how much you value your work, how much your clients value it, how much you need for a living, where you are located geographically, your competition, etc. There are several ways to calculate your fees, here is one very practical way you can do it.
Your basic calculation
(Total expenses + Desiderd Profit) / Billable hours.
6 Steps to calculate your fees
Step 1: Calculate your working hours per year Considering that there are 52 weeks in a year, you can deduct:
- 4 weeks for vacations
- 1 week for sick leave
- 1 week for national holidays
- 1 week for miscellaneous: medical check-ups, dentist, etc.
= you work 45 weeks per year. If you decide to work 8 hours a day, 5 days a week, you come up to 40 working hours x 45= 1,800 working hours a year. Step 2: Calculate your billable hours A big part of your time will not be billable, because you need to spend time on networking, marketing, sales, training and administration, plus anything else that may come up (always add a good buffer). These may include:
- answering emails
- online and offline networking
- writing proposals
- website maintenance
- issuing invoices
- solving technical or administrative issues
- etc.
How much time will you allocate for these activities every day, week or month? For example, if you spend 30% of your time on your networking, marketing, training, and 20% on administration, book keeping etc., you will only be working with clients 50% of your time. This means 1,800 hours – 50% = 900 billable hours. Step 3: Calculate your average business expenses These can include:
- Taxes
- Phone
- Web Hosting
- Office rent
- Stationary
- Travel costs
- Computers and softwares
- Insurances
- Legal services
- Meetings and conferences
- Training and education
- Memberships
Step 4: Calculate your personal expenses
- Food
- Housing (mortgage, rent, maintenance)
- Insurances
- Entertainment (sports, movies, etc.)
- Retirement
- Vacation
Step 5: Calculate the profit you want This is the money you want to earn in order to reach and keep the lifestyle you want. This is basically how much you want to save per year for things such as:
- House renovation or buying a house
- Buying a new car
- Longer vacations
- Education for your children
- Etc.
Step 6: Do the final calculation Put your business and personal expenses together (from Step 3 and 4), then add the profit you want (Step 5). Then divide this amount by the billable hours (Step 2), and as a result you will see how much you need to charge per hour in order to cover the expenses you have and have the desired margin.
Conclusion
As mentioned above, this is just one way to calculate your fees. Even so, it’s a good way to get a feeling of how much your time is worth. If you do this calculation accurately, you may be surprised. Many of my clients realize they are undercharging, and they wonder how they could ever charge the fee they have just calculated. This reality check is vital if you want your business to be profitable for you in the long run. Even if you love your work and “you don’t do it for the money”, your time is precious. And often it’s just a matter of re-adjusting your focus and organization. Earning what you are worth is a huge energizer and motivator that helps you enjoy your work much more, and serve your clients even better.
About the Author
Myriam Callegarin helps global corporate managers and entrepreneurs to successfully navigate the challenges of career and business reinvention. Find practical tools and inspiration in the Resource Center.
« What are you communicating? | Home | 5 Ways to Keep Your Sanity When Working From Home »
There is more!
What clients say
For innovative leaders!
Connect with us
Blog
Comments
dear myriam,
thank you for the “plan B” article. Inspiring text, written in a simple yet efficient way. Concrete plans and steps are useful but this kind of reflexion (where we are/where we want to be) is a must and certainly the first step to everything.
best regards,
dora
Dear Dora,
Thank you! I’m happy you found it inspiring and hope it will help you get started with your own Plan B.
All the best to you,
Myriam
I am a fan of Myriam but the solution I would like to suggest is exactly the opposite:
1. Calculate what fee is YOUR CLIENT ready to pay
2. Calculate the annual income as per Myriam post (working hour x hourly fee – expenses)
3. Are you happy with this income?
a. If you are happy: keep the job
b. If NOT: find another job
Dramatic ah? Unfortunately it is true. No matter what you think, you are worth no more than your client perceive.
Increase the fee and you are out of the market. You will be forced to find another job in the worst moment of your career. So why you don’t change the job now?
And if you think you would keep your job, no matter what (I did), you can think to change the way you work. Maybe you want to take a time management course in this website (I am not paid any commission I swear) or rethink your offer or start giving interview on tv to became famous.
It could be quite frustrating at the beginning, but it is even more frustrating rising the fees only to lose your clients.
Work less, spend more time on rising your brand. Doing what you like usually works as well. If you are an expert and passionate, clients will pay more.
Because … no matter what the client think, you are worth more than your client perceive. You just need to convince him.
Cheers
Stefano
http://www.tlaw.eu
Hi Stefano
Great comments, I agree with many of the things you are writing!
But I have more to share, and I think this is important.
The reason behind this post is that several consultants build their prices based on assumptions. They look at what competitors are charging, they look at what clients “may” pay. And often they are so scared of losing a potential client that they charge fees that are not sustainable for them. They charge too little compared to the time and energy and experience and value they are putting into their work. That’s why so many excellent and valuable consultants have a hard time paying their bills. (It may sound funny, but that’s a tough reality).
So one of the first steps that I suggest is to look at what is your absolute minimum fee you need to charge, in order to cover your expenses and have a margin. That’s how much your time is worth TO YOU.
Then the second step comes: How much is your work worth TO YOUR CLIENTS?
How much money do your clients save by working with you? What happens if they don’t work with you? What short, medium and long-term impact does it have on them in terms of money, health, peace of mind, etc. How much is that worth?
Once you become aware of the true value of your work, you start recognizing how much your work is truly worth. This gives you the confidence and even the boldness to CHARGE WHAT YOUR WORK IS WORTH.
Why would you buy a Mercedes S-Class car, when a small Smart car can also take you from A to B?
People buy more than just the product and service itself. People buy experiences and emotions.
As a consultant, you provide a service that helps your clients not only save money, but it also gives them peace of mind. Not just now, but probably over the next 2 to 5 years. How much is that worth?
Imagine two consultants who charge the same “client-approved” fees. One helps the client set up an office in China within 6 months. The other one does the same, within 6 months as well. After a while, the first client starts getting a lot of troubles and is forced to close everything down and move away from China after 12 month. The second client’s office works fine and the business florishes. And this because the first consultant did not work accurately, while the second one worked very accurately and got the right people on board.
As a client, would you be ready to pay more for the second consultant?
Of course, as you say, this only works if the consultant is capable of transmitting this higher perceived value to her/his clients.
It would be great to read your thoughts on this!
Have a great day,
Myriam
Respected stefano,
Thank you for your inspiring text,explained in a very good manner.
Thanks,
Regards,
syed.
Leave a Comment