Pricing. The topic that makes grown adults go a bit pale.
I’ve been working with solopreneurs and freelancers for a long time now. And pricing is the area where I see the most guesswork. People look at what everyone else charges, knock a bit off to be safe and hope for the best.
Then they wonder why they’re busy all the time but never seem to have any money.
So, let’s fix that. In this blog I’m going to walk you through a simple way to work out what you should charge (it’s the one I use with my own clients).
No complicated formulas. Just a calculator, a pencil and paper, a cup of tea (and a biccie) and a bit of honesty.
Why “what everyone else charges” is a bad starting point
Looking at your competitors isn’t a terrible idea. It tells you what the market expects. But it shouldn’t be where you start.
You don’t know their costs. You don’t know how many hours they work. You don’t know whether they’re making a profit or quietly going under. Copying their prices means copying their mistakes.
Your prices need to work for your business. So we start with your numbers.
How to Price Your Services in Seven Steps
Step 1: Work out what you need to earn
Start with the money you need to take home. Not what you’d like in a dream world. What you actually need to live on, plus a little bit extra.
Let’s say you need to take home a minimum of £30,000 a year. Remember, that’s what you need after tax and National Insurance. So you’ll need to add enough to cover those as well.
If you aren’t sure how much that is, your accountant can tell you (and if you don’t have an accountant, that might be a conversation worth having).
For this example, let’s say you need to bring in £36,000 a year to take home what you need after tax.
Step 2: Add your business costs
Now add up everything it costs to run your business for a year. This list is usually a lot longer than people expect (or want to admit to):
- Software and subscriptions
- Website hosting and domain
- Phone and broadband
- Insurance
- Accountant or bookkeeper (believe me, doing your own Self Assessment rarely saves you money!)
- Equipment and materials
- Training and professional memberships
- Travel and networking events
- Marketing and advertising
- Pension contributions
Go through your bank statements. You’ll probably find a few direct debits you’d forgotten about.
For our example, let’s say your costs come to £6,000 a year.
That means you need to bring in a minimum of £42,000 a year in total.
Step 3: Work out how much time you can actually sell
This is where most people go wrong. They assume they can work 40 hours a week, 52 weeks a year. They can’t. That’s the ‘employee’ mindset.
Start with 52 weeks. Take off holidays, bank holidays, sick days, events, birthdays, anniversaries etc. Most people I do this exercise with end up with the equivalent of about 30 working weeks.
Then think about your working week. You don’t spend all your time on client work.
You have to spend time on marketing, admin, emails, invoicing, networking, learning and the hundred other jobs that come with running a business.
For most solopreneurs, client work takes up about half the week at best.
This means, if you can set aside 40 hours a week for your business, you might realistically spend 20 hours of it on paid work.
Let’s do the maths on that.
Step 4: Do the sums
30 weeks x 20 hours = 600 hours a year that you can actually charge for.
Now it’s time for some simple division.
£42,000 ÷ 600 hours = £70.00 an hour
That’s your minimum hourly rate. The rate below which you’re losing money.
For a lot of people the answer comes as a shock. It’s often much higher than what they’re currently charging. That’s normal. It’s also really useful to know.
Nicky Newton, a Bowen therapist, knows this well. When she came to me, she’d got her business going up to a point and then hit a wall. One of the things we worked out together was how many clients she actually needed to make her business viable. Seeing the numbers changed everything. She stopped under-pricing and stopped doing ‘mates’ rates’. She started treating her business as a business, not a side project. In her words: “I’m thinking differently, charging properly and building a business I can be proud of.”
Step 5: Add a profit margin
Your minimum rate covers your costs and your pay. But a business needs profit too. Profit is what lets you invest in new equipment, build up a cushion for quiet months and grow.
You need to add at least 10% to 20% on top. In our example, that takes you to somewhere between £77 and £84 an hour.
Step 6: Think about the value, not just the time
Here’s where it gets interesting. Your hourly rate is your floor, not your ceiling.
Think about what your service is worth to your customer. If you’re a bookkeeper who saves a client from a £1,000 penalty, you’ve delivered far more than two hours of value. If you’re a copywriter whose sales page brings in £10,000 of sales, the value is in the result, not the time it took you to write it.
Value is about what changes for your customer. And customers will happily pay more for the things that matter to them.
Once you know your minimum, ask yourself:
- What does this solve for my customer?
- What would it cost them if they didn’t fix it?
- What’s the result worth to them?
Then price somewhere between your minimum and that value.
This is also the point where it’s worth having a look at what others charge. Not to copy them, but as a sense check.
If your figure is miles above everyone else, make sure your offer clearly delivers more. If it’s miles below, that’s a sign you’ve been undercharging (and probably undervaluing what you do). Most people find their new figure sits comfortably within the range their market already expects. Which should be reassuring.
Step 7: Package it up
If you charge by the hour (or you’re thinking about it), I’d encourage you to move away from it.
Here’s why.
When you charge by the hour, you get paid less for getting faster. Your customer worries about the clock ticking. And it puts a hard limit on what you can earn.
Instead, package your services with a fixed price. “Website Health Check: £350” is easier to buy than “£70 an hour, probably about five hours”.
Your customer knows exactly what they’re paying. And if you can deliver it in four hours, that’s your reward for being good at what you do.
Use your hourly rate to work out the package price behind the scenes. Then present it as a single figure. And if you’d like a few packages at different prices, here’s how to build a product range.
What about products?
If you make and sell products, the principle is the same but the sum is slightly different. You need to consider things such as:
- The cost of materials
- The cost of your time to make it (using your hourly rate)
- A share of your overheads
- Your profit margin
And if you sell through shops or galleries, remember they’ll take a cut. Your wholesale price needs to work too.
Common pricing mistakes
While we’re here, a few things I see all the time:
Pricing for the customer you think can’t afford you. Price for the customer you want, not the one who’s going to haggle.
Being apologetic about your prices. If you say “it’s £500, but I can be flexible” you’ve just told them it isn’t really £500.
Forgetting about the hidden time. Calls, emails, travel and revisions all take time. Build them in.
Never reviewing your prices. Your costs go up every year. If your prices don’t, you’re effectively taking a pay cut. A standard 5% increase each year is not unreasonable.
Pricing is a confidence thing too
I know that even with all the numbers in front of you, it can feel scary to say your price out loud. That’s normal.
But here’s what I’ve learned. When you know why your price is what it is, it’s much easier to say it with confidence. You aren’t plucking a figure out of the air. You’ve worked it out. It covers your costs, pays you properly and reflects the value you deliver.
That’s not greedy. That’s running a business.
Your next step
This week, grab a calculator and work through the steps above. Steps 1 to 4 will take you about half an hour. Then compare the answer with what you currently charge.
If there’s a big gap, don’t panic. You don’t have to change everything overnight.
If you’d like someone to talk your numbers through with, book a complimentary 30-Minute Consult. Pricing is one of my favourite things to help with.