Money is in the news fairly endlessly at the moment. If you’re feeling constantly paranoid about your prices and if you’re charging correctly you’re not alone. Working out what to charge as a service based business is really hard!
It can feel really overwhelming working out what you need to be charging to ensure you’re making the money you need to be able to afford to live. After all, we may love what we do, but we also don’t want to be working for free.
Where to start?
Start by working out your “breakeven” number. This is the amount that you need to make in order to cover all your costs.
Look through your software or your bank account, see what you’re spending each month/year. Make sure you include/add on your tax payments, and don’t include the money you pay to yourself within this number. If you include your salary your final number will be much higher than we want it to be!
Once you know what running your business costs you, you have a minimum amount you have to make. But, let’s be realistic, we want to do more than breakeven.
What next?
Think about how much money you want/need/dream off to live your life. Yes we’d all like all the money, but we do need to be realistic.
Add the amount you want to pay yourself onto your breakeven number. As a finance professional I should probably mention adding in some money to cover pension contributions for yourself as well. Think of the future you here.
Now we have our magic number, and we work backwards from here.
Say our magic number is £1million. How many hours a week do you want to work? How many weeks a year?
I want to make a million pounds a year, I want to work 24 hours a week and I want to work 40 weeks a year.
1mil divided by 40 divided by 24 means I need to be billing £1,041.66 an hour.
I clearly have some work to do on hitting that hourly rate. But you get the gist. Remember to factor in holidays, time working on the business not just in it, be realistic about how many hours you can work each week.
If you have a team you can split the hourly rate that you need to hit across the team. If there were 10 of me we’d need to bill £100 each an hour. Maybe I just need to look into cloning.
If I’ve given you a headache there is a solution to that issue, we can help you with the maths and working out that magic number! Email us at [email protected] to chat through how we can help.
