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How to … cost your services and calculate your hourly rate

Written by Patricia van den Akker on 06/07/2011 · 1 Comment

Every new project for every client should be costed separately. Develop a clear project brief that explains what you are going to do. Include a separate quote, which explains what exactly is expected, the delivery schedule and related costs. This ensures clear communication, which improves the working relationship with your clients and is part of managing expectations on both sides.

Plan carefully how you will execute the project. Predict your time spent on meetings, producing the work or dealing with subcontractors. If you have kept time records on past projects you should have a realistic overview of how long a comparative project should cost you in time. Add on 10-15% just in case and give a total figure rather than an hourly rate.

Predict your costs for materials, transport, insurance, subcontractors etc. Add all these costs up and again have a 10-15% contingency.

Research any manufacturing or subcontracting costs before committing and get their quotes and lead times in writing too. Check they available and can work to your timescales. Subcontractors might quote excluding VAT and if you are not VAT registered you will have to add this on (17.5%).

Calculating your hourly rate
Calculate your overheads:

Make a list of your annual overheads and calculate your weekly overheads by dividing the total annual overhead costs by the numbers of weeks you work in a year ie £6,000/48 = £125.00 (this takes into account four weeks to cover holiday and sickness)
The number of hours spent each week on undertaking paid work (so do not include marketing, bookkeeping etc) Keeping a timesheet for six weeks can help if you do not know ie 24 hours spent on paid work per week
Calculate your hourly rate by dividing your weekly overheads by your weekly worked hours ie £125/24 = £5.21
If you work with employees this calculation is as follows: £120,000/48×5 = £500/15 = £33.33

Calculate your living costs:
To work out your weekly living costs (what you need to earn at least in order to live):

Make a list of your annual personal living expenses (incl. holidays, rent, food, clothing, transport) and calculate your weekly living costs by dividing the total annual personal living costs by the numbers of weeks you work in a year ie£12,000/48 = £250.00
For an hourly rate that covers your weekly living costs of £250.00, divide the weekly total by the number of hours spent making objects ie £250/24 = £10.42
If you are not a sole trader then use your total annual fixed costs or overheads instead of personal living expenses

The last steps:

To calculate your total hourly rate: add the living hourly rate to the overheads hourly rate ie £10.42+£5.21 = £15.63. This is the absolute minimum that you need to earn every hour that you are undertaking paid work to make a living
Add in the profit margin, a freelancer’s profit margin can range from 15-40%, with 20% being considered fair in most markets
Add all these together and you will have your hourly rate: £10.42 + £5.21 x 20% = £18.76

Categories: How To - Tags: business planning, costing, creative business, marketing, self employment, start ups

How to … get the prices or fees that you really want?

Written by Patricia van den Akker on 06/07/2011 · Leave a Comment

For many startup entrepreneurs the hardest bit is actually asking confidently for the price or fee that they want. Many new sole traders and (creative) people have negative ideas about money, marketing or selling, and will feel uncomfortable discussing prices. The issue is however, that if you don’t value yourself, others won’t either, and you will not have an income or business, or clients, and ultimately you will have to stop your creative work that you can create and share with the world.

A very good exercise that might help you overcoming the major challenge of not valuing yourself or your creative work comes from the book ‘Book Yourself Solid’ by Michael Port. He says: ‘Think of a client who gave you rave reviews. Make a list of all the financial, emotional, physical and spiritual benefits the client received from working with you. Don’t be stingy here. Think big. Now, put a specific dollar or pound value on all of those benefits. Again, think big, no bigger than that. Because … hold on to your hat … you may just find that you have been undervaluing yourself and, as a result, underpricing your products and services. You are giving generously of your talents and skills, it’s likely, the value you provide is worth much, much more than what you’ve been charging’

So go on, make that list, include all the different benefits that your clients get from working with you, and then start adding some real financial figures to that. It will give you great insight in what your clients think you are worth, and will make you feel better about charging the right price.

In addition, start to be absolutely clear what you want to achieve financially. Many people are unclear about what they want, and then complain that they don’t get what they want … So, get clear about where you are now and where you want to be. Stop being so vague! What is your financial or sales goal? Setting SMART goals (specific, measurable, achievable, realistic and time bound) is the first stage in actually achieving the goals that you want! It is easier to share with others, and it will give you direction to where you want to go. i.e. My current turnover is £10K, I want to grow this in 2011/12 to £18K. I currently have got 5 retailers in the UK, I want to have 15 retailers by the end of September 2011.

The next step is then what are the actions that you need to take to actually achieve these SMART goals? For example: create a retailer database, do research into potential retailers, add 50 retailers to my database, create a marketing package with my CV and portfolio to be send to 30 potential retailers, follow up after one week by phone, make appointments with 20 retailers, get into 15 shops.

Secondly, what is so important to you about achieving that SMART goal that you just set for yourself? What will that really give or allow you to do (for example: be really proud that I earn my own money, that I won’t have to worry about providing for my kids, that I can buy a house in the sun and retire there)? And again, what will that do for you? Continue till you really have found your bigger vision, around money and success. Get into action around money from a place of inspiration, not from negative desperation!

Ideally create a picture or collage of what you want, and put it somewhere where you see it regularly. A recent client of mine was struggling financially, and wanted to earn £25K p.a., so that she could take some time off with her partner to go to India early next year. She has put a fantastic image of an Indian dancer on her computer screen, and is reminded of her goal every time she opens her lap top!

Distinguish between your feelings and facts around money. For many people the fear and worries around money are far worse than the reality when they start checking their financial situation in detail. Check what the real situation is. Open your bank statements, and see clearly what goes in and out every month. Create a budget. See where you can save money (those daily cafe lattés?!) If you feel you are more in control of the situation you will be happier about money.

What are your feelings, thoughts and emotions around money? Are they positive or negative? Become more aware of how these negative thoughts influence your ability to earn money or sell yourself. How do they influence you? Then compare how these feelings, thoughts and emotions differ from the reality and the facts.

What does money mean to you? What have you made it to mean? Do you need money to feel secure or generous? When do you particularly feel ‘poor’, and when do you feel particularly ‘rich’? Make a list and compare the two, and see how you can get more of this ‘rich’ feeling. It has often got very little to do with the facts!

Does money and success make you more or less creative? (think about that one for a second …) Stop taking money so personal. Are we really better people when we earn more?

Categories: How To - Tags: confidence, creative business, get into action, marketing, pricing, self employment, selling, start ups, working for yourself

How to … raise my prices (confidently and without loosing clients)?

Written by Patricia van den Akker on 06/07/2011 · 1 Comment

There are lots of reasons to review and increase your prices on a regular interval. Many start-ups find it difficult how to approach this topic, but in the business world it is fairly normal that prices or fees increase or change.

What is really important is that you tell your clients in advance if you are planning to increase your prices. People want to be able to trust you, and like the truth, so tell them! Give them reasonable notice, so they can make a choice. You might even get some more clients, as raising prices is a great excuse to get in to contact again with previous clients!

What is your reason to raise your price?

You don’t need to have a reason! But your clients might want to know.
Simple, because you want to earn more (but be aware that if you charge too much your profitability will actually go down! Becoming more efficient and create more in a shorter period of time might actually have a similar effect on your longer term profitability as raising your prices)
Due to the current economic conditions and annual inflation everybody is increasing their prices. Your material (for example the price of gold!) or travel costs might have increased dramatically and need to be carried over (more) to the client. January is normally a month when companies increase their price.
You want to reposition yourself or work with a different target market that enables you to charge more.
You are busy (or not) and overbooked, but especially want to work less hours but earn the same or a higher annual salary.
You have increased your credibility, done more training, got more experience, have improved your brand or website.

How to introduce new prices?

Firstly, as said above, let your existing clients know in advance.
It is far easier to increase your prices if you provide a service than a product, as they are less comparable with each other. In fact, if you provide a service you might not even state your prices (on your website or brochure), as you want people to contact you to discuss their specific requirements and provide a specific quote. Unless your service is a very specific programme with specific features (for example my own ‘Get Clients Now!’ individual coaching programme) you will not need to provide a fixed price.
If you increase your prices of your product or your hourly rate then do this by a percentage, and introduce these in the first instance to new clients. If you want to you can give a reason, but you don’t need to – be confident about it that you are worth it!
If you introduce new services or products it is easier to introduce them at a higher rate from the beginning. Discount older stock so that there is less comparability, which will decrease the chances of somebody asking about your price change.
Be confident about your work, the value that you add to that specific client, and you will be able to charge the price that you are worth!

Categories: How To - Tags: creative business, marketing, pricing, self employment, start ups, working for yourself

How to … price my services

Written by Patricia van den Akker on 06/07/2011 · 1 Comment

Pricing services is slightly different then pricing products, especially as they are less tangible and harder to compare with each other. A product might have a price label, but many services don’t so there is still room to negotiate about what exactly is required and what price is needed.

As a service provider your overheads and direct costs are also probably far lower than any product based business, so there is less need to calculate your cost or unit price, but you will be dealing more with an hourly or daily rate. However, it is good practice to calculate your expected annual or monthly income and divide that by the amount of days that you expect to actually be able to work and charge. For example you want to earn £24K p.a. as a net salary, which would mean around £30K gross (with taxes included). If you are able to earn 3 days out of 5 you have a fairly steady business (the other days you work on marketing, administration, finance, promotion, research or you are on holiday or ill). You would then need to have a daily rate of: £30,000 divided by (52 weeks x 3 days) 156 days = £192.30 per working day or around £25 per hour.

The process required to set the fee or price of your service:

1. Research your market and be very aware of what your competitors are asking for similar work, with a similar credibility or background as yourself.

2. When discussing with a potential client be very aware of what exactly needs to be done, and what the client really values. For example the first idea stage might take you very little real time, but that is your creativity that most clients are prepared to pay for. The second creative or implementation stage will take longer but will be viewed less valuable by the client. Also, clients are often prepared to pay more for convenience, and to make their lives easier, so suggesting that you will deliver and hang a painting in the living room for free will be highly valued.

3. Also try to check out and be specific how your service adds value to your client, in an economic, social or psychological way. Turn yourself into ‘an investment’ instead of ‘a cost’! How much income will your service generate for your client? How much time and stress will they save? How much pleasure will it create, and for how long will this last (think about the beautiful tailor made wedding dress or a well designed roof extension!)? For example good photographic images of your client’s work and themselves can ensure press coverage or acceptance in trade shows, which is worth a lot of money for your clients. If you provide solutions or advice to your clients (for example branding, copy writers, web designers, interior designers or architects), you can also ask yourself and the client the question: ‘What will it cost you if you don’t do this?’, hereby you can uncover the real financial or emotional need of your service.

4. Create for yourself a very detailed overview of what needs to be done, how much time you anticipate it will cost, and the hourly or daily rate that you want to charge. Probably add 15% contingency on top. Keep time sheets, so that over time you will become better and better at anticipating how long a job will take (most people will underestimate the time required!) Provide the client with a quote with the overall figure, and the total duration. Don’t give a client your exact calculations or forecasts. When you provide a quote give a very clear indication what is included and what is not i.e. insurance, transport, 3 mood boards, 5 packaging designs.

5. Get feedback from clients, and see if prices are the real deal breaker or that they are using ‘the price is too high’ just as an easy excuse not to commit themselves. Also, if none of your clients ever says that your prices are too high, you probably should increase them!

6. Set a price! It is far easier to adapt these for services then for products.

Categories: How To - Tags: confidence, creative business, marketing, pricing, self employment, start ups, working for yourself

How to … price my work

Written by Patricia van den Akker on 06/07/2011 · Leave a Comment

There are different ways or strategies to price your work or products, and often businesses use different price strategies at the same time. These are the most common ones:

The cost price: Do you know how much it actually cost you to produce your work, down to the exact material and hourly cost with everything included? You really need to know this unit cost so that you won’t be making a loss, but also to manage yourself and become for example more effective and efficient with making more products in a shorter period of time. If you know your cost price you can then add a mark up or profit margin to calculate your price.

The going rate: Do you know what your competitors are asking or getting for similar work? This is especially common where there are a lot of similar products or services on offer in a competitive market i.e. freelance designers, which means that if you are too expensive or too cheap you will loose out. If you don’t know then do some market research i.e. check out prices on their website or with retailers, check with ‘people in the know’ or middlemen such as recruitment agencies or websites such as www.peopleperhour.com, or you might even want to go as far as doing some ‘ghost shopping’ and contact them pretending to be a potential client.

Bundle price: It is very common to offer a discount if buyers want more of your products or services at the same time, or if they book at the same time, to encourage them to buy more. For example your daily rate can go down if clients book 10 days or more in advance, or you offer a special deal if clients buy earrings, necklace and a ring.

Credibility-building price: Sometimes there are clients who you really want to work with, who are high-profile but have limited budgets (i.e. in the cultural non-profit sector). You can then decide to do work for them for a lower or no fee, but ensure that you work with the client to increase the promotion and visibility around the work you do, and ensure that it builds on your credibility.

Premium or prestige price: Are you charging more to make your work look more exclusive, based on your brand, positioning in the market and your target audience? Be very aware though that you then will need to provide excellent service throughout, work with the finest materials, and need to be able to show your credibility to achieve these prices.

Features: Have you got similar products or services at different price points within your range depending on extra features? For example a ring in gold or a ring in silver have different prices, a ring with diamonds in the same collection has a different price again. All three rings might be very similar, but due to added features they get a different price.

Psychological price: It is better to price your product to a ‘regular’ number i.e. £95 instead of £102,15. But also, particularly in the gift market, there are certain amounts that people are on average prepared to pay and especially department stores are very aware of this, i.e. the average price for a wedding gift to an acquaintance is £25, if your product cost just a little more than that it will not be bought.

Discounted price: Do a sale at your studio if stock isn’t shifting, or offer cheaper rates in periods when you are quieter for example Monday morning or January.

Loss leader price: This is selling one service or product below your cost price to attract clients in the hope that they will actually spend more money. Supermarkets do this with baked beans, bread and banana’s (the three ‘B’s!). However you might offer a free initial design consultation or something similar to attract clients. Ideally turn it into a ‘credibility building price’!

Emergency price: Is your client in a pickle and do you know that you will have to work many many hours deep into the night to get the work delivered in time? You might decide to do the client a favour, or consider to increase your hourly rate to compensate for the added stress. Also if you know that a client is going to be ‘difficult’, then ensure that you communicate very clearly about what to expect and by when.

International prices: If you work internationally I would suggest that you strongly check out your international prices. Not just on the level of the conversion rate (i.e. the British Pound has been fairly volatile over the last couple of months against the dollar and the Euro) that you need to check on a regular basis. Also check local prices and what your competitors charge locally, as different markets can differ hugely. When I work with Dutch designers I often suggest that they increase their prices for the UK market, as their prices are too low.

Project cost or fixed price for results: Here the total project has a total price, which is often divided in different stages with according fees i.e. 30% deposit upfront, 50% creative stage, 20% delivery stage. This works well if you are efficient and experienced (you know how much time things really take), you work with a more experienced client and you work closely together at the beginning to scope the project and both adhere very strictly to deadlines.

Retainer: This is a recurring (monthly or quarterly) fee for a certain amount of often standardised work i.e. a graphic designers books a photographer for 2 days per month, every month of the year, to ensure a lower but reliable rate. Retainers can be withdrawn at any time, unless a clear contract is in place.

It is a given: Sometimes it is not up to you to decide the price, but is there a given price for a certain type of work i.e. the hourly rate of a freelancer with certain skills, a daylong training workshop, or when there is a tender for a public commission. Then you need to look the other way and see what you can offer for that given budget.

These are just some of the different price strategies that you can use. If you use an additional pricing strategy, then please feel free to comment! Looking forward to your contributions.

Categories: How To - Tags: creative business, marketing, pricing, start ups, working for yourself

How to … know what price to use (when dealing with retailers)?

Written by Patricia van den Akker on 06/07/2011 · 3 Comments

There are a couple of different prices that people refer to, and it is essential that you know what to use, and you will look very unprofessional if you don’t know the difference. From the lowest price to the highest, you will get:

The cost price: This is your own calculation of how much it cost you to actually produce your products. Costing is the foundation of how you will price your work. Do keep this cost price confidential, and do not share with others such as your retailers.

Trade or wholesale price: this is the price you sell to the trade, normally this is your cost price plus a mark up or profit margin. This is the price on your trade price list that you will share with retailers. Do not share this list with the general public or with the media (they might accidentally publish the wrong price!)

Retail price: this is the price that is displayed on your work or on a price list, and is the price that retailers or you yourself charge to the general public (i.e. on your website or open studio event). This retail price is normally around 2.5 to 3 x the trade or whole sale price, depending on the mark up of the retailer. The retailer really needs this mark up to cover their own higher overheads such as the shop rent, taxes, business rates and staff. Do not undercut a retailer, as they will very quickly stop buying work from you!

A couple of additional notes on this:

Trade discount: You might want to offer a trade discount to business who regularly buy from you, but who don’t have a shop for example to interior designers. This trade discount is often around 25% off the retail price.

Royalties: when you are working with a manufacturer and get paid royalties then ensure that you are very aware of the actual %, the expected unit costs, but also how this % will be calculated i.e. their cost price, their trade/wholesale price or retail price, and if it is on products manufactured, ordered or sold. Be also very aware what additional costs will be deducted from the royalty calculation (i.e. postage, insurance, stock costs). Each manufacturing company who pays royalties does this in their own way, so make sure that you understand how it is calculated.

Categories: How To - Tags: creative business, marketing, pricing, selling, start ups

Event: Hidden Art Forum 2011 Making Sales

Written by Patricia van den Akker on 20/06/2011 · Leave a Comment

When? Wednesday 6 July 2011, 10am – 6.30pm

Hidden Art, the well known business development organisation for crafts people and designers based in Hackney, is organising again their annual Hidden Art Forum. This year the theme is: Making Sales. Throughout the day there is a range of topics, incl.:

Selling through different outlets
Online selling
Selling techniques

Speakers include:

Ian Rudge from Clarion Events, who organises the various trade shows for designer makers such as Pulse, Top Drawer, 100% Design and the newly launched HOME trade show.
Charlotte Sale who was the glass designer who showed her work to Liberty at the BBC show ‘Britain’s Best Next Thing’.
Max Fraser, editor of the London Design Guide
Patricia van den Akker (myself!)

To book and register: http://www.hiddenart.co.uk/members/tailoredsupport/forum-2011/forum-2011-programme/

Categories: Events - Tags: creative business, get clients now, selling

Building Bolder & Better Businesses

How to … cost your services and calculate your hourly rate

How to … get the prices or fees that you really want?

How to … raise my prices (confidently and without loosing clients)?

How to … price my services

How to … price my work

How to … know what price to use (when dealing with retailers)?

Event: Hidden Art Forum 2011 Making Sales

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