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Pricing Your Services

I get this question a lot which is how do you determine your prices?  Now, I'm not going to give you advice on how to price a hard good that you sell, but I can give you pricing advice for starting your own consulting business.

So where to start?  It seems so difficult, but if you've been in a corporate job it is a piece of cake to figure out how to price your consulting services.  Here's how to do it.  Basically you need to come up with what your true compensation was at your last job.

  • Total Salary+
  • Bonus+
  • Whatever salary you think you were underpaid+
  • Social security (your business pays part of it)+
  • Medical (that you'll pay now)+
  • Dental (that you'll pay now) +
  • Taxes (depending on how you setup your business) +
  • Insurance (that you'll pay now)- business, life+
  • Any other benefit you were getting

That number equals your base annual compensation.  However, you're not done yet.  You should probably increase that amount by 25% to cover yourself when you don't have any work.  So let's call that new number your total annual compensation.  Now you need an hourly rate.

To get your hourly rate, divide your total annual compensation by your number of hours you think you'll work.  Obviously you'll go with around 40 hours per week, but how many weeks?  52 weeks implies you won't take any vacation, so I'd go with 48 weeks.  So in my example, if your total annual compensation was $150,000 you'd come up with an hourly of $78, so I'd try and price myself out in that example at $100 knowing that I'd have a lot of room to negotiate.

Now that you have your hourly rate, you have to figure out if you can actually charge that and the only way to know is to meet with other folks who do similar work and see if your dollar amount is competitive.  Also, when you speak with your potential customers you'll have plenty of room to negotiate on your price because you built in a 25% premium plus your vacation time.

That's how I priced out my hourly rate and that's how I negotiate a final price to the client.  Good luck.

Eric

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