Recently I was asked the question: How do I decide what to bill for my time? This is a question that plagues many consultants who have no idea what to charge for their services. Here’s what I recommend:
What is your vision for your business?
The first place to start is to understand what you want your business to look like: Do you want to be a premium service provider (i.e. you have a value differentiator in the market) or do you want to be the lowest cost provider? It’s very difficult, and not sustainable, to charge a premium price if you don’t have unique value to offer (this is, in my opinion, one of the biggest mistakes companies make).
What’s your income goal?
At the end of the year, what do you want your income to be? Obviously, you need to be realistic with this number. If you’re a wedding planner with a year of experience under your belt, don’t expect to make what a seasoned and experienced professional nets. As a starting point, think about what your income might be if you were working for someone else.
Know your expenses
Estimate your annual overhead. This would include the cost of your telephone, office / rent, staff, travel, insurance, and all of the other expenses needed to run your business.
Project your profit
What do you want your profit margin to be? – this is what you’ll earn over and above your salary. Profit margins are important: they can help you save up for the unexpected, the wanted and the rainy days. They also give you the ability to reinvest in your business – that means website updates, new staff, new technologies, new inventory, etc…all things important in growing your business.
Estimate your billable hours
A lot of new consultants make the mistake of thinking that they bill for most of their time. Unfortunately with downtime, administration tasks (quoting, billing, book keeping, etc), travel, education, and a slew of things tasks every consultant needs to do (that most hate doing), the average time spent on UNbillable work is about 35%. You also need to account for any vacations or holidays you want to take off throughout the year. So, if you’re thinking of working a 40 hour work week, only 26 of those hours will likely be billable. If you add a 2 week vacation, that works out to 1,300 billable hours per year (26 hours per week x 52-2 weeks).
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Calculating your hourly fee
So, let’s say you want to make $80K, your overhead is $20K, you want a 10% profit margin, and you plan on working 1,300 billable hours
Your salary + overhead = $100K
A 10% profit margin = $100K + $10K = $110K
Divided by you billable hours = $110/1,300 = $84.60
Based on this example, your hourly billable rate would be $85.
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Is this realistic?
Do your research and find out what others are billing. Go back to my first question: What’s your vision for your business and determine how your pricing fits in line with other market offerings. If you’re not in the ballpark, you need to seriously reconsider either what you want to make in a year, what your overhead costs will be and/or how many hours you need to work on billable projects.
Good luck & happy billing.
Do you have any other methods you’ve used to calculate your fees?
You make it sound so simple, this is the main question when we teach event planning, thank you for making it so succinct.
@TahiraCreates Thanks so much for your feedback, Tahira. The unfortunately thing is that many simply research what competitors are charging – big issue (since competitors might be struggling themselves, have different product offerings, etc). I’m so happy that this has helped. Curious to know if you teach a different method for your students?
Lara, check out the “how and how much to charge” class from the Event Leadership Institute. Howard reviews a similar method in greater detail. Might be an interesting comparison.
@carolyn_ray Thanks, Carolyn 🙂
Hi Lara! Thanks for this post. It’s a hot topic in our industry for sure! I always advise too that every Planner should know how many hours go into their project. For the last 6 months I’ve been diligently time tracking each project/client. This way, moving forward, when I present my fee, I’m able to justify every penny of it because I know exactly what my hourly rate is and what the average number of hours I will spend on each project. I think that that equally important to knowing HOW to calculate your fees is knowing how to talk about./explain your fees to a potential client. If you’re just coming up with a random dollar amount (based on market research etc), it is much harder to justify your fee than if you can say “this fee represents 200 hours of pre-planning, including 26 hours on research, 16 hours of meeting time… “etc.
@LavishMary Well said, Mary. It’s so important, especially when you’re selling an intangible. If you’re looking for a great tool for tracking, etc – I use Freshbooks (see ad link on right side of my site). Great for estimating, invoicing and time tracking.
To back up your point, I used to work agency-side as a Brand Strategist. I had to track every bit of my time – not only to justify invoicing, but to identify problem clients, justify change orders and process issues.
Thanks for contributing, Mary!
Lara, I do indeed have another method for calculating my fees, a method which has saved me countless hours of worry over the years. I learned it from one of my mentors, Jerry Weinberg, and have posted about his Ten Laws of Pricing (of which this is one) on my blog:
http://www.conferencesthatwork.com/index.php/uncategorized/2010/08/jerry-weinbergs-ten-laws-of-pricing/
Here’s the simple method, which he also calls “The Principle of Least Regret”.
“Set the price so you won’t regret it either way.”
I guarantee this works!
Love this post – am asked all the time by junior planners, and you address it quickly in an easy to understand way. Only thing I slightly disagree with is the idea (hinted at in Replies to Comments) that planners sell intangibles. The difference between a well-planned and designed event and a mediocre or poorly-planned event is not intangible; it is measurable in dollars and pain points.
@ejpevents Wonderful comments and I’m so delighted you mention the ‘intangible’ issue. Intangible refers to ‘ things that don’t have a physical presence’ – some event companies rent you chairs (something you can see, feel, touch and easily compare before the event); however, many creative planners sell something that can’t be touched (i.e. ideas, concepts, design). These can be measured (if done well) once the event is done but since presenting your pricing often happens before the client has experienced what you can do, I’d consider them an intangible. A lot of clients don’t understand why company A would charge $10/hr for their event vs company B who charges $5/hr. Knowing what goes into your pricing (i.e. your tenure, your experience, the results you’ve garnered other clients, your overhead, etc) is necessary in justifying the ‘intangibles’. I’m feeling a bit under the weather today, but I hope that make more sense 🙂 Thank you so much again for your thoughts on this! I’m glad you mentioned it.