Setting Your Fees

Setting fees is a mathematical process, not a shot at a dart board.  There are two ways to calculate what you should charge.  

The first method is based on financial requirements.  Total up everything you need to cover personal living expenses – be sure to include deposits to savings, retirement, everything.  You can work from either an annual figure or a monthly averaged figure.  Add up everything you expect to spend in the business plus 20% more to be left in the company to grow it to the next level.  Add the two figures together to get the total dollar amount you need to generate from the business.  Divide by the number of billable hours the same time frame (month or year).   A typical service provider can bill about 25 hours per week.

The second method converts an employee pay rate to an independent contractor fee.  Take the hourly rate you made or wanted to make and multiply it by a number between 2.5 and 3.0 which adjusts the base rate to cover the fact that you now have the business overhead, the health insurance and retirement plan.  Take that result and multiply it by the typical 40 hours per week.  As a final step, take that result and divide it by the number of hours per week you plan to bill – not just work, but actually bill.  So the net same money as a $20 per employee you would have to charge $80 per hour as an independent contractor.  Here’s the math:

EX: 20$ per hour as an employee x 2.5 = $50 per hour. 

        50$ per hour x 40 = $2,000 per week

        $2,000 per week divided by 25 billable hours per week = $80 per hour as an independent contractor

Regardless of which method you use – I use both – you then need to determine if your target market will be willing to pay your rate.  If not, you have choices, bill more hours at a lower rate, reduce your costs or move to a higher market.  Even better than an hourly rate is value based project pricing but that will be another post!

1 comment

  1. Phoenix says:

    Susan,

    I like the two methods, but do have one (at least)questions. Would you perhaps start billing at a reduced rate to attract clients in you are just starting out?

    Phoenix