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20 Days to A Better Business: Day 11 Increase Your Rate Per Hour

20 Days To A Better Business

Each Monday we focus on one activity you can do today or over the next week to build yourself a better business. These short, actionable posts will show you what steps you need to take to take your business to the next level.

In case you’ve missed the previous posts, you can catch up here: 20 Days to Build A Better Business.

This is Day 11: Increase Your Rate Per Hour

Never trade hours for cash is something we talk about a lot here on the blog.  However, this post is not so much a post about your hourly rate, but looking at your business as an income machine and it’s capacity to earn more income.

Many business owners, especially those providing services  fail to charge enough for their time in the services they deliver. This can  not only impact their long term prospects but the amount of money that they make from their business.

One way to find out if you’re charging enough for your time is to take your sales for last year and divide it by the number of hours worked by yourself and your team, including any travel time.

This way, you’ll have your businesses “Hourly Rate”. You’ll probably find that you’re charging much less for your time than you  should be, which gives you an opportunity to look at cutting back on areas  which are less profitable or unprofitable.  You can also take the opportunity to cut back on costs of sales, such as discounts, or cutting back on the number of hours worked or the staff required to deliver the sales. (You can also use this technique to evaluate the performance of individuals or groups of employees.)

If market conditions allow you might also be able to raise your prices  and charge for the value that your services provide. The more value you provide, the more people will be willing to pay.

For example I know a gardener,  he charges £16  ($20) an hour mowing lawns. However, when you factor in the time that he lost due to bad weather and traveling between peoples houses, his actual hourly rate was nearer £8 an hour.  For which he was buying, servicing and fueling his mower and running his van.  With rising fuel prices he stood to make even less, so instead he now “hires out” his mower to his clients on top of his gardening services.

Are there things that you provide in your charge-out rate but could actually be charged for separately?

 

 

3 Comments »

  • James M said:

    I may have made a mistake with how I am currently operating my consulting business. I allowed the first two clients to basically set the rate for me. For one of them, they were prepared to pay by the hour and were willing to go over the hours they budgeted, so the price is fair. With the second, they wanted to focus more on the project, not the time. I am currently negotiating a performance bonus with them to help make up the difference (a set % of the difference in revenues from last year). Having performance bonuses is something I most likely won’t be able to negotiate for with other clients. I had worked with these first two previously, so they were more willing to experiment to help me out.

    With future clients, I am preparing various packages to offer at set prices. I am keeping track of my hours with the various tasks I am currently doing which will help me craft fair prices for both the client and myself to make sure I’m not wasting time. I hadn’t thought about doing it this way until I read REWORK by the 37 Signals team (or it may have been on their blog- can’t remember).

    I have a draft for my next post done, and going to sit on it a few days to touch it up before sending it on Wednesday for review. Just a FYI!

    Hope you enjoyed your weekend.

  • Matthew Needham said:

    Hi James, it’s completely understandable that you’d want to charge by the hour for your work. Although the downside is that with charging by the hour you’re effectively comparing yourself with hourly paid workers – a commodity. A better option, which you’ve already identifiied, is to create packages which you deliver on a fixed fee basis. Always deliver incredible value within these fixed fee packages and you’ll be a busy guy!

    Good tip about tracking your time, even if you’re not charging for it by the hour. This will help you track the profitablity of your work.

    Thanks for the comment!

  • Henway said:

    I think charging more improves the perception of your services. If you charge too little, ppl will start to think your services are not as good as others.