Tweet

Service Pricing Strategy: 3 Steps to Finding your Average Billable Hours Target

Written by: Merra Lee Moffitt

Article Overview: So how many hours a year can you realistically bill if you have a growing practice? What should be your target billable rate? Have you set your own goal for billable hours this year?

Service Pricing Strategy: 3 Steps to Finding your Average Billable Hours Target

So how many working hours in a year can you really expect to sell, even if you could sell them all? What if you are a sole practitioner not yet ready to hire help? Your billable hours and your billable rate determines whether your family will thrive, survive, or dive. In this article, we'll determine how you set your billable rate using target family income. In other articles, we'll cover other methods such as value pricing. Working full time at a regular job is 52 weeks a year at 40 hours a week, so there are maximum 2080 working hours in a year. Some of us actually remember working at a straight job, the kind that used to have a salary.

1) Subtract days we need to take for vacation days, education days, Sick days or other large blocks of time that reduce our available billable hours.

2 weeks vacation (at a minimum) - subtract 80 billable hours

2 weeks of holidays (in your own business you may end up doing paperwork those days) - subtract 80 billable hours

2 weeks education (realistic, even if you just do some educational research on the web) - subtract 80 billable hours

2 weeks sick time (again, realistic if you have kids, a spouse, parents or actually even get sick yourself) - subtract 80 billable hours

So now we are at 44 weeks at 40 hours or 1840 billable hours in a year, if we could actually charge clients for every hour of the week, which is unrealistic.

2) Calculate overhead time spent building, managing, and administrating your business.

Typically, these are items performed every week, and reduce your available billing hours on a regular and persistent basis. How many hours do we need for overhead? What's a realistic amount of time each week for:

Invoicing clients

Marketing and sales to get clients

Collecting money from clients

Answering customer service questions

Re-work for service (which you may not be able to bill)

Keeping records (for the IRS, for later customer questions, for analysis)

Researching new methods to help clients

Copying, faxing, emailing, filing

Even if you are good at sales, efficient at paperwork, and fast at implementing new ideas, you are probably looking at 10 hours a week here (more than one day a week).

So within that 40 hour week, you now have 30 average billable hours. That is, if you have no down time between client projects. A reasonable estimate for down time is another 15%. This is time within a project that can't be billed because the client is not ready for your next step, or between projects when you are looking for billable hours or not yet started. This 15% applies if you are in a field with good reasonable demand that doesn't get persistently rescheduled (such as when you are waiting for equipment to be delivered or other client delays). Some of that down-time can be absorbed by your overhead projects. That is why you can't always set aside specific times of the week for your overhead (or end up spending nights and weekends). So we will use 10% for our down time estimate, or 4 additional hours a week. That leaves 26 average billable hours available in a full working week. Over 44 weeks, that is 1196 average billable hours in a year. This should be your target for an average work week; one with no holidays, sick days, or vacation days.

3) How much you want to make determines your billable rate.

If you want to bring $100,000 a year into your family before paying personal taxes, and you have 30% benefits expense (we'll discuss in another article), you'll need to charge $109 as your billable rate for an hour. If your clients won't pay that billable rate, it's time to roll up your sleeves and find another way or your family won't eat! (This is where people call me and we find a way to solve this problem.)

If you think my estimates are too high, then tell me, what would you give up first? I appreciate your comments.

Related Articles
  Happiness Is Doing Meaningful Work and Getting Fairly Paid For It
  Strategies To Increase Fees Performance From Your Strategic Thinking Business Coach
  Self Employed: What Goes into Your Billable Hour?
  How to Price Your Service to Sell
  Billable Hours - Strong Business Credit Options

Article Tags: amount of time, billable hours, billing hours, customer question, customer service questions, education days, educational research, how many working hours in a year, invoicing, irs, overhead time, own business, paperwork, salary, sick days, sick time, sole practitioner, straight job, target family, vacation days



Related Forum Posts
Re: Service Or Product? - I agree with starting a Service-based Business in the economy. Here is what I think is critical: 1. Researching that your Service business has a market. 2. Marketing the Service with as much leverage as possible. 3. Product-izing the Service (aka Package Expert Knowledge). This will only help elevate you as "the" expert in your niche and make you accessible to people in different price points.
Book: Secrets of Six Figure Women - Secrets of Six Figure Women: Surprising Strategies to up your earning and change your life Barbara Stanny, 2002 Jacket: Maybe you've noticed - a subtle trend is gathering steam. Quietly and steadily, the number of women making six figures or more is increasing, and it continues to rise at a rate faster than for men. From entrepreneurs to corporate executives, from white collar executives to free lancers and part timers, women are forging careers with considerable financial success. Through extensive research and hundreds of interviews, including dialogs with more than 150 high earners whose annual incomes range from $100,000 to 7 million, Stanny discovered that ...they all had certain traits in common: 1) a profit motive 2) Audacity 3) REslience 4) Encouragement 5) Self-awareness 6) Non-attachment 7) Financial knowhow She amplifies on these in the book itself. Table of Contents Intro: Welcome to the era of the six-figure woman 1. The Queen in the Countinghouse 2. The Lowdown on low earners 3. Raising the bar 4. Strategy 1: The Declaration of Intention 5. Strategy 2: Letting go of the ledge 6. Strategy 3: Get in the Game 7. Strategy 4: Speak Up 8. Strategy 5: The Stretch 9. Strategy 6: Seek Support 10. Strategy 7: Obey the rules of money 11. Claiming our power Appendces: Resources and websites Tips for getting out of dent Investing Basics: Wealthbuilding 101
Re: How should i promote a new website? - ignore this message IF it's already been stated. I haven't had a chance to read all the replies and i have to jet from the office... I suggest marketing where ever your Target Market congregates. If it's a forum of concerned parents - go there. Strike up a deal with the forum owner (JV) and have him promote it to the list of members (Integration Marketing). If you want to go with Forums then i would partner with a parent who is a frequent poster/moderator on a particular Target Market Forum and have him/her add your link to their signature. That was just a thought but it's not as intense once you get buy in from the Forum owner or high ranked poster/moderator. Hope that sparks some new ideas.
2007 Goals - My yearly goals for December 2007: 1. Add 10-15 new "ideal" clients to our client roster 2. Increase revenues by $500,000 3. Average at least 1 paid speaking engagement per month.
Top sales skills - Qualifying Fast to Avoid Wasting Sales Time Do you chase after your prospects until they tell you yes or no? Do you ever tell your prospects "No", as in "No, I am not going to sell to you"? There are many things in selling that you do not and will not be able to control. The one thing that you do have control over is your time and how you choose to use it. Motivating Prospects Qualifying goes beyond budget, authority, and need. You want to sell to prospects who *want* to buy from you. Finding prospects that need our products usually is not difficult. Finding those who really want our products though can be very hard if we wait for them to come to us. Selling to People Outside Your Comfort Zone Most salespeople who are "people persons", already think that they are good at this. Let me ask you a question. When you last lost a sale, how was your rapport with the key person who decided against you?


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Induction – your first management job

Why Use an Advertising Agency

Ten Things You Can Do To Be a Better Leader

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.