Feedback Form
Home Features Mastermind Forums About Advertise Blog Network Contact Be An Author

How To Calculate A Minimum Fee For Your Services

How To Calculate A Minimum Fee For Your Services
Free Download - Mind Mapping For Small Business Growth By Susan Regier
Name: Email:

Many newly started service businesses run into financial trouble due to a failure to properly calculate the minimum fees they need to charge to remain viable.

The following method is particularly suitable for sole traders and home based businesses, where there are no business partners to share the workload.

Part 1: Annual Constraints

To begin with, every business operates under the following annual constraints:


Total available weeks in the year: 52
Less:
Annual holidays 4 (in weeks)
Public holidays 2
Sick leave 1
Professional development 1
Subtotal -8 weeks
Number of sellable weeks per year: 44 only.


Part 2: Available Time

A typical working week is reckoned at 38 hours. So if you are working for yourself, you have 38 hours, times 44 weeks = 1672 hours, = approximately 1700 hours for sale each year.

However, service businesses typically average only 65%-75% paid hours per year.

There are many essential tasks such as book-keeping, marketing, answering and responding to inquiries, business networking, market research etc., that do not directly generate income.

Taking 70% paid hours as a realistic maximum figure, your income estimate should be based on 1700 x 70% = 1190.

In round terms, then, 1200 paid hours per year is a realistic practical target for an established service business.

Part 3: How To Calculate A Minimum Fee

There are three steps:

(1) Divide your total annual operating costs by your projected paid hours, based on a maximum of 70% paid hours. In this example, we will work with a projection of 1200 paid hours. This gives your hourly overhead costs - in other words, what it costs you to operate your business.

(2) Nominate the salary equivalent you require, and divide by 1200 available hours. This gives the hourly rate you want for yourself from your business.

(3) Divide the potential interest on the total amount of capital invested in your business by your projected available hours. This gives the opportunity cost per hour - in other words, the amount that this money could otherwise be earning for you if you had chosen to use it as a financial investment.

Adding the per-hour cost of each of these components will enable you to calculate your minimum, base-line fee per hour.


A worked example:
Sample
Figures: Your
Figures:
Annual operating costs $10,000 $ ___________
Salary equivalent required $60,000 $ ___________
Capital investment $5,000 $ ___________
Potential interest return on capital invested = 10% = $500 $500 $ ___________
Sellable hours 1200 hrs hrs
The Calculation:
Overhead cost component: $10,000 divided by 1200 hours $8.33 $ ___________
Salary equivalent: $60,000 divided by 1200 hours $50.00 $ ___________
Opportunity cost: $500 divided by 1200 hours = $58.75 $0.41 $ __________
So the minimum hourly rate here is: $58.75 $???

In round figures, the sample minimum hourly fee is $59.00. And yours is: $__________

If you are working on an hourly basis, charging less than this will produce a direct loss.

Now consider what will happen based on only 40% paid hours (= 680 hours p.a.).

Using the figures in the example above, you must charge out at $90 p.h. minimum rate. Unless you already have an established client base, this is where you may have to start.

And more importantly, you may also find that your operating costs rise as you become established.

You may need to cover the costs of in house or out-sourced book-keeping, secretarial and order taking, marketing, promotional, and other services, to grow your business as you wish.

The lesson here is that it is most unwise to drop your desired rate to "get a foot in the door", to "get known", etc.

It is likely that those businesses charging what at first may sound like "high rates" for their services do so because this reflects the real cost of providing them.

Many people who shudder at the price of services forget that someone is paying their superannuation, holiday pay, work insurance, business perks and office amenities for them.

Service providers will often lower their rates to get some business, especially when first starting out. I've done it myself - and I think most people providing services have.

But while there may be some flexibility in your rate scale, you can never afford afford to charge less than the minimum needed to keep your business viable.

And that must be determined by mathematical calculation, not by hopes of "getting a foot in the door". You must know your costs. There is never any point doing work at a loss.





How To Calculate A Minimum Fee For Your Services - To learn more about this author, visit Susan Regier's Website.

Like this article? Share it with your friends

Article Tags:
Recent Search: how to calculate cost of officers

Article Feedback
 How To Calculate A Minimum Fee For Your Services Wonderful, Useful for the people in need
Commented on How To Calculate A Minimum Fee For Your Services.
 How To Calculate A Minimum Fee For Your Services Leave Your Feedback
article feedback

Article Feedback

To learn more about the Evan Elite Author Program please contact us.

how to calculate cost of officers About The Author
how to calculate cost of officers

Susan Regier
(Visit Susan's Website)
Susan Regier has helped hundreds of businesses find their authentic voice and get the word out. As the owner/head writer of Vantage One Writing (www.vantageonewriting.com )Susan works directly with entrepreneurs to find their core essence and develop a compelling marketing message for various mediums, including brochures, Web site content, media releases, articles, and professional profiles/bios. In 2009, she launched www.SusanRegier.com to sell how-to informational products based on her successful hands-on workshops. These products are invaluable for entrepreneurs starting their business or for those who would simply prefer to do the work themselves. They are essential for freelance writers, virtual assistants, coaches and marketers who are in the business to help others achieve exponential results. Susan is committed to connecting people to one another and to valuable business resources. Networking has been a way of life for Susan, President of Networking Today Franchise Inc.(www.networkingtoday.com ) and the publisher/editor of Networking Today London, Ontario (established 1998); Canada’s fastest growing ezine.


how to calculate cost of officers Susan Regier is a Platinum author on EvanCarmichael.com
how to calculate cost of officers About The Author

how to calculate cost of officers Author Blog
how to calculate cost of officers Author Blog

how to calculate cost of officers Video
how to calculate cost of officers Video

how to calculate cost of officers Free Downloads


Susan Regier's

Complete
List Of
Marketing
Articles

Name
Email
If you enjoyed this article, get Susan Regier's Complete List of Marketing Articles For FREE!

More Susan Regier
Whats Newsworthy in Your Business
Hooking the Media
Networking With The Media
Marketing Letters that Open Doors
5 Things You Need to Know Before Hiring a Copywriter
They Laughed When I Started A Home Based Business
9 Tips For Moving Home And Business
Establishing Or Expanding Your Premises A Checklist
How You Can Stand Apart
Internet Marketing Strategy 4 Tightly Focus Your Site
how to calculate cost of officers Free Downloads


 
 
 


Evan Elite Authors
Jeff Foster  
Staging Diva  
Dianne Crampton  
Evan Elite Authors

Become An Author
Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details.
Become An Author

Evan's Latest Video
Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media
Evan's Latest Video




Evan's 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:
Evan`s Newsletter

Free Downloads
A Clean Desk Icon A Clean Desk
Making It Happen Icon Making It Happen
Evolution of Networking Icon Evolution of Networking
Online Marketing Tools Icon Online Marketing Tools
Increase Performance Leadership Icon Increase Performance Leadership
Free Downloads - Complete List

Entrepreneur Tools and Guides
Fortune Hunters - CBC Entrepreneur TV
Fortune Hunters
CBC Entrepreneur TV
 
Guide To ERP Software / Business Management Software
Guide To ERP Software
Business Management Software
 
Entrepreneur Tools and Guides

SEO For Africa
SEO For Africa
Gladys Odei Nkawkaw, Ghana,
Gladys Odei
Nkawkaw, Ghana
SEO For Africa

If I Were A Startup...
Gord Hotchkiss, $113k to $1.5 Mil in 5 years
Gord Hotchkiss
$113k to $1.5 Mil in 5 years
Dana Zita, > $2.5 Mil in revenues
Dana Zita
> $2.5 Mil in revenues
If I Were A Startup... - Complete List

Famous Entrepreneurs
J.K. Rowling, Harry Potter
J.K. Rowling
Harry Potter
Henry Ford, Ford Motor
Henry Ford
Ford Motor
Famous Entrepreneurs

Entrepreneur Advice
Jay Conrad Levinson, Guerilla Marketing
Jay Conrad Levinson
Guerilla Marketing
Seth Godin, Ideavirus Author
Seth Godin
Ideavirus Author
Entrepreneur Advice - Complete List

Popular Articles
(Premium Authors)

     The Balancing Act Part 1
By John Toomey
     The Balancing Act Part 3
By John Toomey
     Expressing Your Creativity
By John Toomey

Have A Suggestion?

Toronto Salsa Classes / Toronto Salsa Lessons 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 and Sean Combs!

Have A Suggestion?

More Evan Carmichael
More Information