How I Price Services as an Entrepreneur / Small Business
Cover Your Expenses
There are many pricing strategies out there. Usually at the beginning, people think they should be undercutting the competition’s prices. But this isn’t a good strategy in the long run.
You could just follow industry standards; research current market offerings and average salaries for your role. But maybe your prices should be above the market standard. Think of your positioning but more importantly, think of your expenses.
Product based offerings are easier to price; the expense per item, or the cost of goods sold, is easy to calculate with the raw material and assembly costs.
But what about service based offerings?
After a few months into your business and tracking your efforts, you should be able to find the numbers you need to calculate your expenses and cost of services sold.
To get your cost-per-hour, divide your total expenses by total hours worked, of the same timeframe.
2,937.74 / 156.85 = 18.729
My example, which does not have any transportation or benefits/insurance expenses, but it gives me a little idea of what the bare minimum my time is worth.
Now, finding these numbers might be difficult and you might not even be started for all I know; if this is the case, then you can calculate an hourly cost based off industry salaries.
Find Your Industry Standard
A good place to start is with a standard salary for your role and level of experience. Investigate your industry by location and role titles to get an idea of what you can expect.
Browse job titles and find the ones that apply to your services. There are a bunch of websites you can use—Job Bank or Stats Can (both by the government) or Indeed, PayScale, GlassDoor, and more—most include a wage or salary you can specify by location or experience.
Make a table and track the low & high averages, as well as the median. From this you can make a reasonable salary estimate for what you do, where you live.
A salary is based on a 40 hour work week. We have 52 weeks in a year.
You get 2,080 working hours/year.
47,000 / 2,080 = 22.596
57,000 / 2,080 = 27.403
67,000 / 2,080 = 32.211
The hourly wage for a marketing specialist ranges from $22.60 - $32.20 an hour.
but
We are looking for the hourly cost, to the business, of this employee. Since they are salaried, they are going to have some vacation days, breaks, sick days, and benefits baked into that figure.
Calculate Hourly Cost from a Salary
To find the hourly cost of this employee, let’s consider subtracting some total work hours for the following:
20 hours for personal days, appointments, leaving early, arriving late
260 lunch hours/year (52 x 5)
133 vacation hours (19 x 7)
35 sick hours (5 x 7)
That’s 448 hours on the company’s dime.
Leaving about 1632 hours of actual work in a year.
so
Take your salary estimate and divide it by actual work hours:
47,000 / 1632 = 28.799
57,000 / 1632 = 34.926
The expense of a full-time marketing specialist for a company is around $28-34/hour.
But the problem is, I’m not a corporate business, and I assume you aren’t either. This is where we determine how much profit margin we should add to our hourly expense estimate to give us our hourly rate.
Pricing Strategies
There’s a few pricing strategies we can talk about but I like to focus on Product Line & Optional Product pricing. This gives customers variety to choose from so that they feel they are getting the best bang for their buck.
Not everyone needs the premium product or service, and they don’t want to pay for one either. I’ve found some of the work I help customers with doesn’t require premium marketing skills to complete or is improving something that already existed.
I want to reflect this in my pricing and ended up creating a product line strategy. When it comes down to it, I offer people 3 levels of service, I’m just creating, I’m going back for edits, or I’m designing/analyzing.
Rule of Thirds
Where does the actual price for the product come from? Using a cost+ model, essentially breaking your price into
1/3 for your cost of services (hourly cost)
1/3 for your marketing and administrative
1/3 for your overhead/profit/unproductive
(Independent Book Publishers Association, LinkedIn)
Applied to my cost-per-hour 18.72 x 3 = 56.16
Applied to cost-per-hour (corporate) 28.79 x 3 = 86.37
Following this strategy I could charge $55-85/hour. In 2017 I first calculated these numbers and they were pretty similar. I chose to anchor myself at $52/hour and that is where my price will continue to stay in 2022.
Believe in Yourself
You can use all the strategies in the world, but if you don’t value yourself or your services, no one else will either.
