How do you charge yourself out in your business? Is it by hourly rate? By Commission? Or on a per Project Rate? Do you have the ability to turn what you work on into a project? I believe charging per Project makes things a lot easier for you the business owner and for the customer. They are clear, concise and easy to charge out. BUT they will only work for some businesses.
Over the last few weeks we have looked at how we go about charging ourselves out. Wether that is on an hourly rate, by commission or a project rate. Today we are looking at Project Rates. You can read my previous blogs in this series as well – Can you make money from Commission Sales and What are you worth and how do you charge.
It is also a good idea to read my blog about how much it costs to open your businesses doors each day, so that you get a good understanding of what you need to charge yourself out at.
So lets look at Project Rates. Charging by project rate is just that, for every project you do for a client it has a different rate. If you were an Accountant you would be doing Tax Returns for, say $99. But then setting up Self Management Super Funds for maybe $10,000.
It doesn’t matter how long it takes to do something cause the amount for each project is set, so if the Accountant takes 3 hours to do a Tax Return then he has lost money, but if he takes 3 hours to set up a Self Managed Super Fund then he has made a lot of money.
But it is not necessarily about how much money you are making on a project it is about the piece of mind or the benefit. For example, $99 tax returns for an individual is worth every penny as it gives them piece of mind that they have claimed everything they needed to claim and they have got back as much tax as possible from the government. It probably only took 15 minutes in with the Tax Agent and then 14 days later you have their return. It was $99 worth spending.
The same goes for the $10,000 Super Fund set up. If a business owner who is quite successful is paying tax every year, then having a Self Management Superfund could save them quite a bit of tax.
Lets say for example, it saves them $8,000 tax a year, until retirement. That could be 40 years away. So by paying $10,000 to set up a Super Fund, might mean that it cost them $500 an hour at the time they got it done, but it will save them $320,000 over the life time of the fund. Well worth the money I would say.
Project Rates can be used in lots of different industries. You can have the Plumber have a set rate for Hot Water System Replacements. He could advertise that he replaces hot water systems for $1,000 including system. For the consumer this would appeal to them as they know what they are getting and for how much.
For the Plumber, he knows how much he is going to receive and what work is involved. It doesn’t matter what size the system is or how long it takes, all that matters is that the customer gets a new system for a price that and it is up and running within a few hours.
The Plumber may loose money on some systems that are bigger but he will also make a lot of money on the small simple systems. If the plumber systemised his method of installing hot water systems. Then he would be able to get in and get out relatively easy.
Now lets look at a Web Designer. If he was smart he could offer standard websites for, say $2,000. And for that you will receive a home page, an about page, a contact us page, a product or service page and a blog page. It will be on a platform that the Web Designer uses all the time and he will have different templates that you can choose from.
This is clear for the customer to understand what they are getting and what information they need to provide and the Web Designer knows that it wont take him long to do as he has done it time and time again. The customer feels they are getting great value for their money and the Web Designer is clapping his hands at how easy it is to make $2,000.
Charging by Project is about getting in your mind a clear understanding of what you are providing. It has to be a specific service or product that has a start and finish time. You can’t be charging per project for something that could change as you go along.
An example of this is the Building Industry. A small builder will quote a price to build your house and it will have in it everything that you have asked for. As the build progresses you change your mind and want different things so the builder makes variations to the project and therefore the price changes as well.
Quite often those variations cost the builder quite a bit more and therefore, you the customer are charged quite a bit more and in the end your house could cost you $20,000 more than quoted. This is project based charging at its worst.
With bigger builders, the customer walks into a display homes, picks one of 20 house designs, with the design you are given different levels of finish, you may choose the standard finish, or medium or the high finish. Under each finish you are given a range of products to choose from. You cannot go outside of these products, what you chose you get and there are no variations. This is project based charging at it s best.
So how do you go about charging per project, I hear you ask? What you need to do is sit down and work out what you can offer as a project. You need to be very clear and there can’t be too many variations from that. The Web Designer and the larger Builder are great examples of setting up great projects. They are also appealing to the consumer, as they know exactly what they are getting for their money with no variation. What can you turn into a project? What has a start time and finish time and can be duplicated from client to client?
Also go back to our checklist from the last two weeks and do some checking on your industry. You also need to go back and read my blog how much does it cost to just open your doors and work out how much it cost you to just operate each day.
- You need to work out what your project is? Write down specifically what you are offering to your customers and how long it will take.
- You need to do a bit of market surveying and ring or get someone else to ring 10 businesses in your area that do the same thing or similar to you and ask them what they charge, or how do they charge.
- You need to do a bit of market surveying of businesses similar to yours but who aren’t in your area, so they may be in the next town across or in your Capital City. You just need to get an idea what and how people are charging.
- Then you need to look at your ability and what you offer. Is it the same as everyone else in your industry? Or are you doing things slightly different?
- Write down the project rate that is the highest in your industry in your area. Does it cover your costs? Are you comfortable with that rate? Do you think it should be higher or lower? If it is higher will people pay that rate? NEVER EVER charge less than what everyone in your industry is charging, even if it doesn’t feel right to be charging that amount.
- Believe that you are worth every cent you are charging. If you don’t believe you are then you shouldn’t be in business, it is as simple as that.
So now I need you to go out and just do it. Find out what projects you will be doing and how much to charge for them. Make things easy and simple for yourself.