I think one of the most frequent questions that I receive is about how to price services and, in light of the recent current events, specifically online services.
When you see this question asked in online forums the answers are all over the place: charge less, charge more, the same.
These opinions are given without any real knowledge of why they suggest it, simply that was what they were told once, or it happens to be working for them.
But business is about data.
When we make important business decisions by relying on what our peers are doing, or gut feelings, we are making a mistake. And that mistake could be costing us money.
Pricing a New Service: What’s your base billable rate?
When I am sitting down to price a new service that we are offering at Best Paw Forward, I always go back to the data. Each year, I evaluate our financial needs and calculate our base billable rate per hour.
Since our dog training business is our sole source of income (aside from Michael’s drill checks, which usually are just enough to cover his expense for the weekend and our medical insurance), we have to make sure that we are not only making ends meet but are able to save and provide for our two kids.
I’m not using real numbers here in effort to use easy math, but let’s say that our yearly net income needs are $50,000 for our family of four. I need to make sure that this number not only covers all of our necessary bills but also allows us to save and contribute to our retirement plan.
I start with that $50,000 base and add 20% ($10,000) to cover my tax liability for the year. Then I add in business expenses (treats, promotional materials, advertising, continuing education, software expenses, processing fees), which total about $5,000.
Now I know that I need to generate at least $65,000 of revenue for my business in order to meet my financial obligations and goals for the year — but how does this help me with pricing my services?
If I am able to work 20 billable hours per week (that’s face to face time with clients or working directly with clients) then I know I need to bill at least $67.71 per hour that I work with clients.
That’s $65,000 divided by 48 weeks in a year to arrive at roughly $1,354.17 in revenue per week.
If I need to generate $1,354.17 in revenue per week with 20 billable hours, then that means each of my client facing hours is worth $67.71 ($1,354.17 divided by 20). And that’s the minimum I should be charging to meet my financial goals.
Now, I know you’re saying “But hold up, there’s 52 weeks in a year and dog trainers don’t take vacation!”
But you should.
And even if you don’t, there are ups and downs to this business so let’s plan ahead for them by being conservative.
How does that work out for group classes (whether they are online or not)?
Let’s say our group class meets once per week for six weeks. I spend an hour at class, plus let’s say an additional hour on client questions or sending homework per week. That means the class is 12 hours of billable time total.
Are you with me still?
12 hours of billable time at $67.71 per hour means that my class revenue needs to be $812.57 total.
Divide that among 6 students and that’s $135.42 per student MINIMUM that I should be charging.
Can you charge more? Sure! IF your market can financially afford it, your effectiveness supports it, and you appropriately convey the value of your class.
Should you charge less? Probably not. At least not if you want your bills paid.
What about for online one to one consulting?
The same math applies. The base rate is $67.71 per hour so that is the minimum that you need to be charging.
If you’ve ever heard me talk about pricing, you know that I am in favor of creating programs that include all kinds of value for your clients rather than charging per lesson — and I’m definitely not a fan of offering discount packages.
But that’s another blog post for another day.
I’ll leave you with the idea that at any given time, your billable rate (that $67.71 I calculated for my – hypothetical – finances) is the absolute minimum that you should be aiming to make per client facing hour. And if you can charge more, do it.