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5 Tips for Pricing Your Services When You’re Self-Employed

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How do you know how much to charge when you work for yourself? Good question. The first thing to remember is to not fret. As the late, great Bob Marley once said, “Don’t worry, ’bout a thing, cause every little thing’s gonna be alright.”

Here’s how to price your services so that every little thing will in fact be alright:

1. Do Your Homework

You are one of a kind, top of the line, the best and the brightest, but if you charge one-in-a-million prices, then you may send clients running down the block to Second Best, LLC.

As a solopreneur, you need to strike a balance: the price of your services should reflect both the value of your work and the expectations of your clients. Self-employed people do a lot of work “behind the scene,” the time-consuming, thankless tasks that rarely show up on an invoice (driving, printing, scanning, even sweeping up the office!) that are an essential part of self-employment. And every solo-entrepreneur knows the feeling of frustration that creeps up around 4:45: Where did the time go? I’ve been working all and I can only bill 4 hours!

Before you hang your shingle, ask yourself some simple questions that will help you settle on a fair pay rate: Are you highly experienced? Can you offer something that no one else in your industry provides? Would you rather be competitive or cultivate an image of “prestige”? Will you need to reduce your rates for the time being in order to attract new clients?

Even if you’ve been working in your field for years, it pays to do some research. Contact trade organizations or scan the Internet to see what your competitors are charging. There is a mean market rate for every industry and service; if you’re feeling overwhelmed by all the numbers, then figure out this average rate and ask yourself if you would be willing to work for less. In the beginning, you will probably want to price your services near or below the market average. Once you build your reputation, then you can adjust your prices to reflect what you feel is the “real value” of your work.

2. Break it Down

Even if you plan to charge a fixed, per-project fee, it is still worth your while to calculate your hourly wage. Add up your labor, overhead, and any profit that you plan to earn. The result is the minimum amount you must charge customers in order to cover your expenses, pay yourself a salary, and build a reserve of cash for your business. Depending on the conditions of the market, you may be able to charge more for your labor, or you may have to cut back on your personal pay in order to keep your business afloat.

Calculating overhead costs can be difficult when you’re self-employed. Generally, it is always best to overvalue your expenses—if you cannot pay your bills, then your credit and your business will suffer. Don’t forget about phone and Internet bills, office furniture, printing costs, postage, transportation, legal and accounting fees, business insurance, and, last but not least, your rent and utilities.

3. Don’t Skimp on the Benefits!

As a solopreneur, you should earn a salary equivalent to what you would make working for someone else. If you are working for peanuts, then what is the point of being self-employed? Benefits are not a special dispensation or a privilege, they are a basic component of your pay: sick leave, holidays, and vacation should be part of your self-employment plan, otherwise you’re liable to fall apart before the end of your first year.

Many self-employed people feel that healthcare is simply too expensive, but it need not be. Our friends at Ehealth can help you get a competitive plan. In the end, it’ll be up to you pay yourself according to your priorities. Health insurance, life insurance and a 401(k)—don’t be afraid to charge a little more! Your health, both physical and financial, is too important to ignore.

4. Trust Your Instincts

There’s a good reason you went into business for yourself: you believe in your intuition. Have the courage to trust your gut when it comes to your hourly rates.  At the end of the day, you only have yourself to blame if you feel like your work is undervalued.

5. When in Doubt, Ask Your Clients

Most self-employed people work with friends and family, at least initially.  If you’re flummoxed, ask your friends what they would be willing to pay for your services. Often, solopreneurship means walking a line between close, quasi-personal relationships, and tradition client-and-provider interactions. You’ll need to decide for yourself if it’s appropriate to broach the subject with a customer.

  • bsaunders

    “Even if you plan to charge a fixed, per-project fee, it is still worth your while to calculate your hourly wage. Add up your labor, overhead, and any profit that you plan to earn. ”

    Like many entrepreneurs, I’ve struggled with this. I’ve come to the conclusion that the best way to reverse engineer this is to figure out what a work DAY and work WEEK should flow like, and then how much you can produce. Every other method I’ve tried as a freelance writer has come up short. For example, I might be able to write up, say, a case study in 4 hours. Can I churn out 2 a day, 5 days a week? Not with good quality. So, whether I price by the project or by the hour, the rate is based on, “I can comfortably do three of these per week.” 

    I am pretty certain that many writers, designers, etc., have a process wherein something might pour out in one hour at the keyboard but entail ten hours of thinking, ruminating, and circling.

  • JRoseenberg

    I used to charge by the hour but found that clients like flat rate fees better. And I liked that I could offer a “free”consultation, knowing I could work that into the back end of the fee eventually. So I did sort of what Bsaunders says, I estimate the total time and cost and then bid  a flat fee. It usually works out pretty even, and at least I am not billing them for every 10 minute cycle!

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