<= o:p>
Many
entrepreneurs frequently struggle with setting a fee schedule for their wor=
k.
While it’s tempting to set a low price and cut profit in order to lure
customers, this strategy will almost always backfire. Some customers may re=
sist
your attempts to increase prices later on, while others will be suspicious =
of
what they are receiving for such a great price.
Tra=
de
journals and professional organizations often publish baseline rates and fe=
es
on a national, regional or local basis. Networking with other entrepreneurs=
can
be instructive, although some may be justifiably reluctant to discuss their
fees with potential competitors. You also want to learn the rationale behind
various price structures to arrive at appropriate rates for your customers.=
A g=
ood
starting point is to set an hourly rate. As you gain experience, you’=
ll
be able to set flat fees based on the amount of work, supplies and other
resources that a job will require. Often rates can reflect what a company w=
ould
pay someone with your skills to do the same kind of work in house.
Say=
a
comparable full-time position for your service pays $30,000 a year. Dividing
that figure by 2,000 (approximately 40 hours a week for 50 weeks) results in
$15 per hour of straight pay. Next, add a percentage to cover the cost of
fringe benefits that employers normally pay (such as Social Security and
unemployment and health insurance). Generally, fringe benefits equal one-th=
ird
of an employee’s pay. Then figure a percentage for your overhead cost=
s:
office space, equipment, supplies, vehicles and time devoted to business
development and research. Fifteen percent is a common premium.
Nex=
t,
consider your profit margin, such as 15 percent, for funding capital
investments or future growth, and surcharges for time-sensitive assignments
that may require extra effort or rescheduling on your part. Other variables
that influence your prices may not become apparent until after you have bee=
n in
business for some time.
Reg=
ardless
of how you set a price schedule, make sure that you and your customer agree=
on
the fee up front, especially if expenses and surcharges are involved. If the
customer wants to negotiate, weigh the pros and cons of a lower fee. Is thi=
s a
one-time project or the beginning of a steady stream of work? Does the clie=
nt
have a reputation for reliability? Will you still be able to cover your cos=
ts
of doing business?
By =
the same
token, you may develop a strong enough relationship with your regular custo=
mers
to confidently offer a discount in return for a larger volume of work. Just=
be
sure that this discount does not cut into your profit margin, and that the
advantage of staying busy does not limit your ability to attract other, pot=
entially
more lucrative assignments.
If =
you
would like to discuss this topic or business planning, business growth
strategies or a specific business issue, contact SCORE® “Counselo=
rs
to
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