How to Price Your Services

Column by Steve Strauss

It has been estimated that there are over 25 million home–based businesses in the U.S. today. Unfortunately, when establishing a price for their services, many of these home–based businesspeople often do a poor job because they undervalue the worth of their services.

Invoices

If you sell a product, it is not that difficult to know how much to charge. You begin with your wholesale cost and calculate your retail price based upon that. The real trick is figuring out what to charge when you have a service business. One reason it is hard to figure out what to charge is that new home–based businesspeople mistakenly assume that their value is the same as when they were an employee getting paid for 40 hours of work a week.

But the problem is that when you become self–employed, especially in the start–up phase of the business, there are many things that you must do that aren't billable. In fact, you may not always be able to bill eight hours for your services every day. Even if your business is going well, you still have to hunt for business, deliver proposals, handle administrative duties, plan, and so on. Thus, you have to factor this non–billable time into your week, and realize that you may have to work more than 40 hours in a week to get everything done. This is why you must charge your clients more than you charged your last employer.

For example, if you earned $25 an hour as an employee, you probably should charge $50 to $70 an hour once you are self–employed. When I worked for a big law firm, they routinely charged the client double what they paid me. That is how they made a profit, and that is what you must do too.

Yes, this might seem hard to do at first, but you cannot let your lack of confidence cause you to under–price your services. If the client could do what you do, he wouldn't need you. Since he does have a specialized need, and since you can fulfill that need, your clients are forced to "rent" your time.

As such, you should take a lesson from the car rental industry. If a car rents for $50 a day, that works out to $1,500 a month. Yet you could buy that same car for $350 a month. So why do you rent it? Because you have a specialized need, and the rental company can deliver the product and provided a valuable service that fulfills that need. This is just the same when someone "rents" you.

So, when you price your personal services, think like a rental car company, and charge for the real value of your services.

Back to top

LIMITATIONS. The information contained in this article is for general guidance. Such information is provided on a blind-basis, without any knowledge as to your industry, identity, or specific circumstances. The application and impact of relevant laws will vary from jurisdiction to jurisdiction. There may also be delays, omissions, or inaccuracies in information contained in this site. The information on this site is provided with the understanding that Staples.com and its affiliated entities, and various authors and publishers providing such information are not engaged in, and that providing such information does not constitute the rendering of, legal, accounting, tax, career, or other professional advice or services. As such, information on this site should not be relied upon or used as a substitute for direct consultation with professional advisors. Please refer to our Legal Terms and Conditions for further information.