Do you get a case of the ass-sweats when someone asks what your rate is?
Do you have any idea how to actually calculate your billable rate or price your services?
The Quick and Dirty Method
When determining your rate for services, a good rule of thumb is to divide what your annual salary should be by 1,000.
For example: Let’s say you were working as an Executive Assistant, classified as an employee. Later, you quit your job to start your own VA business (congrats, btw!). In your prior position, you were making $50,000/year with an hourly rate of about $24. When you go out on your own, you can’t charge $24/hour and expect to make $50,000/year.
This is because you are now responsible for 100% of your self-employment taxes and a whole new slew of responsibilities. In order to run your business, you will need to handle invoicing, advertising, bookkeeping, and networking, just to name a few. Not every hour of your working day can be billable and you’re no longer receiving benefits or PTO.
If you bill your clients $50/hour ($50,000/1,000), that accounts for working 40 hours a week, taking off two weeks a year, and self-employment taxes. With that same $24/hour, you would need to work more than 40 hours a week, 50 weeks a year, to hit the $50,000 mark.
Keep this formula in mind when you set out to price your services.
We guide our clients to use that calculated hourly rate as a metric, not something that’s set in stone. It might not always be possible to get your desired rate with every single client. For example, with easier clients that provide consistent work, a lower rate is acceptable. But as a whole, the total sum of your time should be creeping towards whatever annual goal that you have for revenue.
If it’s not, then it’s time to adjust your rates. If you aren’t comfortable adjusting your rates, try doing it slowly! For example, every third or fifth client, raise them a bit. Or each month/quarter/year, raise your rates.
Determining Your Rate for Flat-Fee Pricing
If you bill using flat fees, it might be a good idea to start diligently tracking your time. This will give you a good baseline of how long tasks are taking. There are a lot of time trackers out there, such as Harvest or T-Sheets. The longer you track time, the more accurate your flat fee pricing will be.
When deciding what your flat fee should be, it’s still wise to use the “divide by 1000” rule. For example, if you need to be billing $50/hour and one of your offerings generally takes 3 hours, your flat fee should be $150.
If that doesn’t apply in your situation, then look at your calendar. How many jobs can you realistically complete? You can’t base your rates on having more clients than you can physically service! Once you know your limits, look at what your revenue goals are and divide that by the number of jobs or clients you can take on. That will give you a rough estimate of what you need to be charging each client. Be sure to ask yourself if this rate can be sustained in the marketplace. For example, if you can only complete 10 jobs per year and your revenue goal is $50,000, each job should be billed $5,000.
As with everything – you win some, you lose some. Some jobs you’ll be able to complete in a very short period of time, but others you may “lose money” on if you quote the flat fee project too low.
Take a look at what your competitors are charging – this will give you a good idea of what the market will support. If you don’t feel comfortable asking competitors what their rates are and posing as a potential lead, check out their websites and look for pricing pages. From there, build a spreadsheet that includes their fees and services included.
Unfortunately, there is no hard and fast way of coming up with a billable rate for services. It depends on the industry, the service, the location, the type of work, and other qualitative factors such as who you are working with, if it will lead to other work, if you’re breaking into a new industry/group, etc. At the end of the day, check-in with yourself. How do you feel with the rates you are charging? Do you feel like you’re settling or selling yourself short? If so, raise your rates. I believe that it’s so important to make sure we’re vibrating at a high frequency if we want to attract more of what we want in life, and being upset with ourselves for not standing up for what we deserve isn’t going to get us there. I believe in you.