How To Realistically Set Your Fees - Part

We all know there are weeks in a year and working hours in a week. Therefore, we can bill hours per year, right. Wrong. Too often this is the trap that many new service businesses fall into. The first step in calculating your billable hours is to define a realistic working year. If you were employed elsewhere, you would expect or want at least two weeks vacation time, one week sick time, one week personal time and paid holidays. So, where does that leave us - weeks minus four weeks leaves weeks minus about paid holidays, or a total of approximately weeks per year. OK, you say, that means I can still bill for weeks times hours per week or hours per year. If I charge $ per hour that comes to $,. Not bad, that is more than I was making on my previous job. Wrong. What you have just established is a realistic working year, not the number of billable hours. You still need to account for marketing time, administrative time, bookkeeping time, equipment maintenance, continuing education, etc. You also need to calculate in equivalent time for self-employment tax, local business taxes, etc. In many locales, this can add up to an additional % or so in time or money. If we assume approximately one hour per day for marketing and one hour per day for administrative, etc., (and this is a very conservative estimate, then we need to subtract: weeks times days per week equals days at hours per day equals hours, from , for billable time left in a year of hours. Now subtract approximately % for the above taxes or hours and that leaves you with billable hours in a year. And this may still be high, but at this point, you can see to earn that $, per year you will need to charge $, divided by hours or about $ per hour. There are many factors which need to be examined in setting your fees. We'll look at those items that need to be taken into account, such as business expenses, insurance, pensions and profit margin, in upcoming articles. Hopefully, this article has at least pointed you in the right direction. Next article we'll take a more in depth look at the role expenses play in setting your fees.