You’re about to take that exciting first step into self-employment, but how much should you charge clients? There isn’t a magic formula when it comes to working out your pricing, but there are some key factors worth considering. Like most business decisions, pricing starts with market research and working out your costs.

How much do your competitors charge?

We know that pricing up your services can feel terrifying when you’re just starting out, even if you know what the market rate for your industry and level is. Will people pay it? Is it too cheap? Should you just give up at the first hurdle and admit defeat? Move to the moon maybe? Don’t panic!

The simplest way to start researching where you belong pricewise, is to look at what your competitors are charging. It’s all about striking the balance between offering competitive prices and making sure you’re not selling yourself short or limiting profit potential.

Get into the finer details of this to see what they’re offering for the fees they charge. For example, they might seem expensive, but include a lot of things you would class as optional extras (allowing your clients to pick and choose).

Working out your business costs

Profit is what’s left over once you deduct the business’s expenses from the money it earns. Understanding how much it costs to run the business will help you work out how you need to charge in order to make a profit.

Keeping track of costs is also essential for claiming tax relief on allowable expenses, and making sure the business is as efficient as it can be. You might make lots of sales, but if your expenses are high then your profits might not look too healthy. It’s one of the many reasons why a good accountant will preach the benefits of reviewing your financial reports.

Don’t forget the admin cost of running a business

Sending invoices, collating receipts, submitting tax returns… it all takes time – which means less time available for billable work. The price you charge your clients should make this worth the effort!
 

How much do you need to earn for yourself?

Before you choose your superyacht, how much do you need to earn from the business so you can pay all of your own bills? If this will be your only source of income, then it’s also worth noting that self-employed people don’t get paid time off in the same way that employees do. Factor sick pay and holidays into your pricing!

How experienced are you?

You’re charging how much for fifteen minutes work?! Well, yes actually, because you’ve had ten years of practice which is why you can do it in fifteen minutes. More knowledge and experience mean more value to the client, and that’s worth paying for.

What charging method should you use?

Pricing up a job can be done in units depending on what best suits you. Some industries favour a particular method, such as skilled trades which tend to charge a day rate but really, it’s up to you. Once you know how long something will take, you’ll be able to apply this to how you bill your clients and provide much more accurate quotes.
 

Why keeping track of time is so important for businesses

Although spending time on tracking your time might seem counterproductive on the surface, dig a little deeper and you’ll find there are real benefits. See time-tracking as an investment for improving your overall performance and organisation, rather than another chore.

 
Recording your time in 15 or 30 minute segments can be especially useful. It’ll help you spot the true value of all those “quick phone calls”, and make it easier to tot up the billable time you should be charging to clients if you charge by the hour.

Review your price list every 6 months

Those in the know recommend reviewing your pricing every six months. Check back in with your competitors, reassess the nature of your industry and evaluate what is and isn’t working for you as a business.

How do I negotiate fees with clients?

Where possible, let them go first! They’ll normally pitch lower than they’re prepared to pay (the Golden Rule of haggling!), but to you it will be either:

• Higher than you normally charge (wait till you’re out of sight to start the victory dance)
• Acceptable, and you can decide whether to agree, negotiate, or ask for other considerations such as payment milestones
• Lower than normal. If it’s so low that it’s not even in the right ballpark, it’s time to be polite but honest and let this one go. If it’s a little low, it’s time to negotiate!

If you ever need to justify your pricing (even to yourself), remember that your clients won’t pay employer costs, such as holiday pay, or National Insurance and pension contributions. And they want to hire you for a reason!

Don’t be afraid to offer alternatives either. For instance, changing the scope of the project, or breaking it down into chunks with their own payment milestones.

How can I change my prices without upsetting customers?

Like any business, you’ll naturally want to raise your prices at some point. Whether this is to expand generally, to bring it in line with inflation or because you’re in a rough patch, customers will come to expect it. That doesn’t mean they like it very much.

Raising your prices is a delicate balance between getting what you need and keeping your customers happy. A huge increase may be what you need to keep your business afloat but if there are no customers left, it’ll have the opposite effect to what you want.

There’s no point hoping your customers won’t notice. Inform clients so they can review their own budgets – ideally giving them enough time to prepare. It can also help to explain why you need to raise the price.

It’s a bit different if you need to adjust your pricing because you’re registering for VAT, but you should still let your clients know as soon as possible.

 
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.