What Price For Your Hourly Rate?

Calculating your pricing guide is an important part of your venture. Your hourly rate can dictate how profitable your venture will be and how much you will take home at the end of every week. What price you go for will depend whether you are a service or product based business.

If you are a service business this is fairly easy. You can calculate the total number you operate your services such as typically this is a 40 hour week. In these 40 hours you must account for all of your bookkeeping, advertising and other admin hours on top of the hours you can allocate to providing your service. As a general rule of thumb you should at least increase your intended hourly rate by about 400%. So say you want to earn $1000 a week in a 40 hour week, your hourly rate should be around the $100 an hour mark. In a 40 hour week you may spend 10-15 hours doing admin work and travelling. On top of this you will have other overheads and expenses. That is why tradespeople tend to get paid a lot more. However if you are really busy this rate gives you room to employ other people and make a mark-up. This also covers you while you are in your quieter periods.

Your pricing guide if you are a business with a product is different. With this sort of business you first need to work out your product cost. Then on top of this you need to work out all of your overheads including labour. The great thing about this is by calculating your unit costs and gross profit per product, you can calculate your breakeven point for an indicated price point.

From past lessons being the cheapest is the very dangerous. It will devalue your brand and give you less room to increase your prices in the future. You will also rely on doing volume which is not easy to maintain if the correct systems are not in place. From what we have seen from the GFC is that being cheap when you are not pushing large volumes will kill your business.

On the other hand businesses and ventures which value themselves and focus on providing a greater service to their customers can afford to increase what they charge. By knowing the capacity of what your business can handle can also limit to how high you can charge. At the beginning when testing your market you can afford to try pricing models. However once your brand is built doing these changes is not so easy so be weary.