Figure Out How to Calculate Your Rates

How to Calculate Your Rates

There are several different ways to determine the cost of your services. Keep in mind that every business approaches this process differently.  Variables such as a company’s size, equipment and staff can influence prices. For some businesses the supplier relationship and access to bulk or discounted supplies can easily change a bottom line.

Here are a few tips to determine how much to charge:

1.   DETERMINE YOUR COST OF DOING BUSINESS

Your first step is to determine the Cost of Doing Business (CODB).  Your CODB is the daily cost of doing business for every day that you work. Minimally it should include office space, utilities, phone service, health insurance, professional development training, travel and entertainment, professional subscriptions, staff, marketing, training, equipment, insurance for equipment, bank fees and website fees – to name a few. You should also add income factors like your desired salary and estimated taxes.

Use the following calculators to determine an approximation of your CODB:

If you don’t know the exact numbers, make an educated guess and plan on tracking your expenses so you’re be well-informed in the future.  You may want to look through previous receipts to determine an overall average for line items you don’t know off-hand. Determine if you can minimize any expenses that won’t affect the quality of your services.

2. DETERMINE YOUR SELLING PRICE

Fixed Costs (Daily Cost of Doing Business) + Variable Costs (Event Specific Fees) + Markup (Desired Profit) = Your Selling Price

Once you know your daily cost of doing business calculate the variable costs associated with your business. Variable costs can be the number of extra staff or equipment you may need to ensure a successful event.

Add your fixed and variable costs, then add your markup. The markup is an amount added to your total costs in order to create a profit.

Don’t be overly concerned about your markup; we are all used to paying it whether we realize it or not. It’s the reason why it’s cheaper to go to the grocery store and get dinner rather than eating at a fancy restaurant. Check out the Top 10 Retail Markups

3.   GOOGLE YOUR COMPETITION

You mentioned that you don’t have a lot of local competition to compare cost. Do a search on key business terms to see if you can find the fees charged by similar companies in neighboring cities and throughout your state. Keep in mind that the cost of goods and services can vary based on location.

4.   USE ONLINE TO TOOLS TO HELP GUIDE YOU

Use online tools like Your Rate and MyPriceApp  to help determine an appropriate amount to charge on an hourly basis.

BONUS: DON’T FORGET UNCLE SAM

Unless you look good in stripes or an orange jumpsuit, make sure you remember to include your financial obligations to the IRS. Determining how much to charge should take into account your self-employment taxes. If you are a business owner or independent contractor who provides services to other businesses, then you are generally considered self-employed. You are still responsible for self-employment tax even if your business is not your primary source of income.

Read More:  IRS Small Business and Self-Employed Tax Center

About Rochelle Robinson

Rochelle Robinson is a Business & Wealth Advisor offering business strategy and financial management services. She is passionate about the economic empowerment of women and serves as a financial writer for several online publications.