How To Determine What To Charge For Your Services
We’ve talked about my personal journey into entrepreneurship a lot and today we’re going to keep on digging deeper. I’m hoping that some of the lessons I’ve learned will help you from making mistakes as you start your business or continue to grow it!
Way back when (before I discovered web design), I still knew in my heart that I wanted to create. I mean, it’s why I became a graphic designer and why I started The Busy Bee. When I first started out, I made knitwear and sold it on Etsy! This was my first experience with learning how to price products. I was charging $20 for my handmade scarves, pricing them at a number that I felt was reasonable — a price I’d pay at say, Target or Macy’s. Over time (and as arthritis started to develop in my hands at the mere age of 20), I realized that $20 was not going to cut it. These scarves took me upwards of 6 hours to make and when you subtract the price of materials, I was making a little less than $2 an hour. Let that sink in.
As you continue to learn and grow as a business owner, don’t be afraid to let the income you’re making grow with you. It’s expected that as you become more knowledgeable in your field, you make more. That shouldn’t change just because you’re the boss. Think of it as giving yourself an annual review. Each year, sit down and make a plan, think about the increase in value another year has given your clients, what financial goals you have and pay yourself accordingly.
I don’t have a lot of recurring clients (this is part of my personal business strategy), so when I raise my prices I don’t need to send a letter or make an in-depth post on Instagram about it. I can simply pick a date where my prices will be raised for new clients (typically at that new year mark) and if I do have someone on retainer, I give them 60 days to find someone new if my prices are out-of-budget. Then, it’s easy peasy and I give myself a big ol’ high five.
When it comes to figuring out how much you should charge in the first place, the formula is actually quite simple! I like to calculate a range of how much I need to make in the year all the way to how much I’d ideally like to make in the year. I do this by following these steps:
Figure out how much you NEED to make in a year (aka, enough to pay your bills, feed yourself and have a roof over your head). This is your absolute minimum.
Figure out how much you WANT to make in a year (aka, enough to pay for your coffee addiction and new leggings from Lululemon every now and then). This is your goal number.
Take your minimum (from step 1) and divide that number by 12. You now have what you have to make each month in order to survive. Now take that new number, and divide it by how many clients you can serve each month. You now have what you have to charge each client in order to survive.
Take your goal number and divide that by 12. You now have what you'd ideally like to make each month in order to live comfortably. Take this new number and divide it by how many clients you can serve each month. You now have what you'd like to charge each client in order to live comfortably.
Gut check. Look at your ideal price and let it sit with you for a bit. Does this number feel too high or too low? Adjust accordingly. Be careful here — don’t undersell yourself and your worth but also don’t go charging clients a number that won’t get you any business.
If you prefer AN actual formula, use the below:
Money you need to make each month:
Money you need to make in a year / 12 months
Money you want to make each month:
Money you want to make in a year / 12 months
Your minimum price per service:
Money you need to make each month / # of clients you serve a month
Your ideal price per service:
Money you want to make each month / # of clients you serve a month
Example of the formula in action:
Need to make each month:
$36,000 / 12 months = $3,000
Want to make each month:
$72,000 / 12 months = $6,000
Minimum price per service:
$3,000 / 3 clients = $1,000
Ideal price per service:
$6,000 / 3 clients = $2,000
At the end of the day, you’re in a high-stress leadership role. If you were in your position at a corporate company you’d be compensated for it, so don’t be afraid to do so for yourself! You’re a boss babe for a reason—let your bank account and client book show it!