Guilt, nervousness and general confusion are all common feelings experienced when setting your self employed hourly rate. It’s especially worse if you are taking your first steps into self employment but were previously employed, meaning someone else was probably responsible for price setting, negotiations and winning business.
Well, when you are self employed it is important to tackle the question of hourly rate setting head on and handle it like any other business would – focusing on the cold hard numbers, realistically and setting all emotions to one side. It is essential that your hourly rate be firstly be worked out mathematically which will tell you whether, based on your desired working circumstances, how much you need to to charge per hour to cover your personal and business and tax costs. Then once the maths is done, stop to ask yourself 4 common sense questions as your final check of your hourly rate:
1. How Much Do Your Competitors Charge?
Every market has a ‘going rate’ – the price that your potential customers and clients expect to pay. When you have calculated your desired hourly rate, its worth checking this against competitors in your particular market to determine whether you can charge more or your hourly rate is too high and you would effectively price yourself out of the market.
You can get a feel for how much your competitors charge by looking at online marketplaces such as People Per Hour or Upwork, or rates advertised on your competitors websites. Speaking to potential customers is also a great way of testing your pricing.
2. Should You Charge a Minimum Number of Hours?
Depending on the nature of your work you may need to travel around to clients premises. When you are self employed you are generally only paid for the number of hours you actually to work not your travel time. If you happen to find a client that is difficult to get to and requires, say, a 3 hour round trip to get to their premises then you will loose 3 hours chargeable time in your working day. If the client only requires one hour of time from you then the cost of your travel time will be more than what you will be paid. Setting a minimum number of hours you need to be paid for is one way to deal with travel time or you may need to decline particular opportunities.
3. How Much Are You Worth?
Once you have worked out your hourly rate and checked it to the going market rate take a step back and do a sense check of what you will really earn.
- Does it truly reflect the experience and expertise you will bring to the job?
- Will you business not make you the money you need in your personal life and do you need to make the difficult decision that you cannot pursue your business idea?
- Are you better off NOT being self employed and working for a large business that can pay you the salary you deserve?
4 Is Charging an Hourly Rate Appropriate?
It is becoming more and more common in many industries to offer fixed pricing arrangements. This could be more beneficial than charging an hourly rate or it could mean you earn less than your desired hourly rate. If it means you earn less perhaps you need to think about streamlining what you offer, to reduce your time spent or processing how you deliver your work.