Charging either too little or too much may produce the same results: difficulty luring customers, poor cash flow and suspicions about the quality of your work. Here’s how to develop a fee schedule that’s fair to you and your customers.
1. See Who Else Does What You Do.
Trade journals and professional organisations often publish baseline rates and fees for national, regional and local markets. Asking other entrepreneurs is also helpful, though some may be justifiably reluctant to discuss their fees with potential competitors. Be sure to learn the story behind these prices. Blindly charging the same as someone else may be inappropriate for your business or customers.
2. Set a Reasonable Starting Point.
Many first-time entrepreneurs begin with an hourly rate based in part on what a company would pay someone with comparable skills to do the same kind of work in-house. As you gain experience, you’ll be able to augment your hourly rate with flat per-project fees.
3. Don’t Forget the Extras.
Your hourly rate should include a percentage to cover the cost of employer-paid fringe benefits (RAs, health insurance), and your overhead costs (office space, equipment, supplies, vehicles, business development and research time). You may also include a profit percentage for funding capital investments or future growth and surcharges for time-sensitive assignments or those that require specialty work and extra resources.
4. Reward Customer Loyalty.
As you develop “regular” customers, consider offering discounts in return for a larger volume of work. Make sure this discount does not cut into your profit margin and that the advantage of staying busy doesn’t limit your ability to attract or serve other customers.
Be sure your customer is aware of your rates and surcharges before doing any work. If the customer wants to negotiate, carefully weigh the pros and cons of a lower fee. Is this a one-time project or the start of a long-term relationship with this customer? Will you still be able to cover your costs of doing business?
6. Keep Your Prices Current.
Don’t set your price schedule in stone. Monitor inflation, industry trends and your own costs to preserve your profit and marketability. Some variables that influence your prices may not become apparent until after you’ve been in business for some time.