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  • #988076
    Newbusnewbie
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    I would like to know how people work out their service charge out rate. I am thinking of having three levels – hourly, per package/bundle and then a customized quote for more detailed/difficult or company specific procedures that are unique to each business.

    How do you work out what that magic figure is? Is there a formula that I can play with? I don’t want to do this for peanuts and not make any money, but on the other hand I don’t want to price myself out of the market.

    Any suggestions are greatly appreciated.

    Thanks!

    #1165509
    Calcul8or
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    Since a lot of what I do in my business is identical to what I did in my previous job, all I did was take the hourly rate I was on at work, and multiplied it by 1.5 to compensate for non-productive time.

    1.5 was probably a very modest multiplier, but I was targeting SMEs, who I assumed would be very price sensitive. I use that calculated rate for overall project quotes as well, and then adjust to fit what I think would be acceptable to the client.

    I’m probably doing it all wrong, and it hasn’t even made me a millionaire, let alone a billionaire like everyone’s supposed to be these days. So I’ll be very keen to see other suggestions people may have for your question as well.

    Programmer. Analyst. Nerd. Calcul8ors.com.au Custom Software & Collaboration
    #1165510
    Bronwyn Baird
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    Hi NewBusNewbie

    Charge out rates can be difficult to work out when you are a sole trader. A businesses who employs staff will use a multiplier – this depends on the industry and can be 1.5 to 3 times the hourly rate of remuneration.

    A good way to start would be to look at your competitors (with similar business model to you) and see what they are charging. Maybe choose 3 and compare these with your gut feeling on charging.

    You also need to take into account your overheads (monthly expenses) to ensure that you are not running at a loss from the start if you are fully charged out.

    Each business is different and the industries and markets are also variable – hence the need for a tailored solution for your specific needs.

    I like your idea of have a package rate (volume discount), this will ensure that clients that are using you regularly or for large projects will be rewarded with an overall lower charge rate.

    I’m happy to talk to you further about this is you like – the costing process can get complex.

    Good luck with your business

    #1165511
    LucasArthur
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    Oh Boy,

    What an interesting question with many variables as an answer..

    There are some apparent formulas… i would love to advise more thoroughly, although one popular outline (if you are not trying to benchmark against competition – which i am sure you are not or you would have a rate already) would be like below, and assuming you are the only income generator:

    Step 1: Add all your anticipated expenses for the year together (office, car, fuel, stationary, staff, etc etc) : lets say $100,000

    Step 2: Add your expected annual salary to Step 1 (include taxes, super, etc): lets say $100,000

    Step 3: Add in any other costs you may have or savings goals or buffers for contingencies… :lets say $20,000

    Step 4: Add Step 1, 2 and 3 together. Equals Total: Lets say $220,000

    Step 5: Divide Total from step 4 by 52 (weeks): $4,230 per week is needed to cover costs in step 1,2 and 3

    Step 6: Divide Step 5 answer by how many hours you want to work – or think can work: lets say 40 hours. Lets do it… $4,230 / 40 = $105.76 per hour

    Please note: i am basing this on your forum title – CONSULTING CHARGE OUT RATES and assuming all your income is from consulting… This would mean if you want to turn over $220k per annum to cover your anticipate costs and wages and only want to work a leisurely 40 hours per week, you must clear $105.76 per billable hour to cover all of this…

    Hope that helps and not confuses.. but there are lots more professional people here that could have a better input 😮 i get a little distracted at times..

    Cheers
    Jason

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1165512
    bluepenguin
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    One of the worst habits you can fall into when starting out in business is discounting. If you set that precedent from the beginning, it can be very hard to grow the mindset and confidence that allows you to charge what you are actually worth.

    I would recommend just sticking to an hourly rate to begin with. Base everything on that and make no apologies. If you’re good at what you do, you treat people well and your rates aren’t ridiculous, they’ll pay what you ask.

    If your rates are too high or low, you’ll find out soon enough and can adjust them accordingly… just don’t fall into the trap of starting out too low – you’ll regret it.

    #1165513
    LucasArthur
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    SimplyReplica, post: 191670 wrote:
    Oh Boy,

    What an interesting question with many variables as an answer..

    There are some apparent formulas… i would love to advise more thoroughly, although one popular outline (if you are not trying to benchmark against competition – which i am sure you are not or you would have a rate already) would be like below, and assuming you are the only income generator:

    Step 1: Add all your anticipated expenses for the year together (office, car, fuel, stationary, staff, etc etc) : lets say $100,000

    Step 2: Add your expected annual salary to Step 1 (include taxes, super, etc): lets say $100,000

    Step 3: Add in any other costs you may have or savings goals or buffers for contingencies… :lets say $20,000

    Step 4: Add Step 1, 2 and 3 together. Equals Total: Lets say $220,000

    Step 5: Divide Total from step 4 by 52 (weeks): $4,230 per week is needed to cover costs in step 1,2 and 3

    Step 6: Divide Step 5 answer by how many hours you want to work – or think can work: lets say 40 hours. Lets do it… $4,230 / 40 = $105.76 per hour

    Please note: i am basing this on your forum title – CONSULTING CHARGE OUT RATES and assuming all your income is from consulting… This would mean if you want to turn over $220k per annum to cover your anticipate costs and wages and only want to work a leisurely 40 hours per week, you must clear $105.76 per billable hour to cover all of this…

    Hope that helps and not confuses.. but there are lots more professional people here that could have a better input 😮 i get a little distracted at times..

    Cheers
    Jason

    Uh Oh,

    I knew i would overlook something.. As an alternative, you may want to amend step 5 and divide by 48… Reasoning, if you aint figured it, is just in case you dont want to go crazy and take holidays for yourself :)..

    Amended outcome…
    Step 5: $220,000 divide by 48 = $4583.33

    Step 6: $4,583.33 divide by 40 = $114.58 per hour needed..

    Apologies for not giving you any time off ;)

    Jason

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1165514
    MissSassy
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    Jason’s answer for you is perfect and one that can be variable for everybody. We all have different requirements, wants, needs etc.

    Your healthy income is just that – It is yours! There is no correct rate only the rate that you are happy to do the work for.

    #1165515
    Divert To Mobile
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    Somewhere buried in this website is an hourly rate calculator.
    Never mind I dug up the link here http://www.flyingsolo.com.au/hourlyratecalculator
    best of luck,

    Steve

    #1165516
    Anonymous
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    Hi Newbusnewbie,

    We have a handy hourly rate calculator here on Flying Solo that will take the pain out of all the maths for you.

    Hope that helps,
    Jayne

    #1165517
    Anonymous
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    Divert To Mobile, post: 191700 wrote:
    Somewhere buried in this website is an hourly rate calculator.
    Never mind I dug up the link here http://www.flyingsolo.com.au/hourlyratecalculator
    best of luck,

    Steve

    Sorry for the duplicate post – Steve beat me to it! He’s awesome that way :)

    #1165518
    alliedib
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    bluepenguin, post: 191672 wrote:
    One of the worst habits you can fall into when starting out in business is discounting. If you set that precedent from the beginning, it can be very hard to grow the mindset and confidence that allows you to charge what you are actually worth.

    I would recommend just sticking to an hourly rate to begin with. Base everything on that and make no apologies. If you’re good at what you do, you treat people well and your rates aren’t ridiculous, they’ll pay what you ask.

    Never a truer word has been spoken.

    Those that respect the value that you can bring to their business will never question the hourly rate as it is a ‘value’ proposition you provide. Those that want you to cut your rate want you to cut your service to them (implicitly).

    And to be honest – those that are ‘business people’ will understand this. Those that think they are business people will be the ones that question you.

    Regards,

    Mark

    #1165519
    Calcul8or
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    I really appreciate this discussion, because it’s been something I’ve often thought about.

    I’ve saved large clients six figure (annual) sums because of systems I’ve created. But because they have access to other “resources” like me, I couldn’t dream of charging them on the basis of what I save (or make for) them. In fact, my quote has to be competitive or I’ll never hear from them again.

    On the other hand, if I charged a small client even half of the savings I can deliver over a single year (bearing in mind the savings would continue every year after that), it would still seem a bit rich.

    The value I deliver far outweighs the cost in a lot of cases, but because most businesspeople tend to be interested in keeping costs down, rather than being eternally grateful, they see me as a cost too!

    The thing that worries me is that by being too steadfast on hourly rates, at the end of the day, I could end up with nothing more than bucket loads of pride to bank!

    Programmer. Analyst. Nerd. Calcul8ors.com.au Custom Software & Collaboration
    #1165520
    Tony Manto
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    Yes, Jason has nailed it!

    #1165521
    Newbusnewbie
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    You are all awesome! Thanks so much for all your comments. I will definitely look at the calculator. I am targeting the smaller end of town business wise so am mindful that they won’t have the budget like big business, but I am also not a charity;). I think it will be a fine line between what I need/want to earn and Iwhat they are willing to pay. like the idea of not discounting and I don’t want to fall into that trap but fear that to win work initially it might be better to discount. How do you manage that?

    #1165522
    RobinH
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    Hi all.
    I’ve got a similar question – but its related to intense working periods.
    I work in Proposal Management – so my Consulting assignments are very deadline driven, and the hours can be very long in the midst of a large bid.

    I’ve decided to charge my time on day & half day measures – keeping it simple.

    However there is also likely to be some interstate/overnight travel involved in larger tenders, and I’m trying to work out a fair way to charge this time. I also have the problem that toward the pointy end of the process the days can become very long (18 hours is not outside the norm) and whilst i’m not too fussed about counting hours most of the time – I feel I’d like to charge a bit more for these days on an ad hoc basis.

    My thinking is perhaps to have three options – half day; standard day; and a ‘long day’ which includes either overnight and anything above 10 hours – this would be charged at 1.5 x day rate.

    I’d be grateful to hear peoples experience of similar situations and any other ideas of how to deal with this issue without overcomplicating things. I dont want to be watching the clock and charging my client hourly -and we both want to be able to have a basic guide on budget (hence the day rate) before going into this.

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