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Making More Money Per Hour

time_money_balanceBigg success is life on your own terms. Today’s topic really covers two of the five elements of bigg success – time and money.

Specifically, we want to discuss charging for your time. If you’re a consultant, a coach, a freelancer or anyone who bills hourly, how do you determine what an hour is worth?

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One of the biggest reasons small business people don’t reach bigg success is because they don’t charge enough. In fact, in many cases, the business fails for this reason.

So pricing your service is very important. We can think of two primary methods to arrive at a price:

The Market Approach

This is probably the most common way that entrepreneurs arrive at a price. With this method, you simply look at your competition to see how much they’re charging. Then depending on your strategy, you charge the same, a little more or a little less.

The Cost Approach

Here you determine how much you need to charge based on your cost structure and your opportunity costs. By opportunity costs, we mean:

How much could you make working elsewhere?

Add your hard costs to your opportunity cost to arrive at your price per hour.

Limitations

The downside to just using the Cost Approach is that it ignores the market. For instance, your price may be a lot lower than the market but you wouldn’t know it because you haven’t looked at the market. You would be leaving money on the table.

Or it may be a lot higher and the market won’t compensate you what you the amount you need for your time. The result would be a failure that could have been avoided.

The Market Approach also has its limitations. We have a friend who looked at his competitors’ hourly rate to determine how much he should charge. He opened up his shop and started losing a lot of money every month.

He was perplexed, so he did a little more competitive research. He discovered that all of his competitors were losing money as well. Everybody was in a price war; nobody was charging enough to make money.

So he increased his price based on his costs. He lost some customers when he did this but he started making money.

Because of the limitations each method has, we recommend that you use both methods when you’re trying to arrive at a price for your service. Then you’ll have two reference points from which to make decisions.

The Value Equation

Now we want to move to making more money per hour. From the customer’s point-of-view:

Value = (Service x Quality) / Price

From this equation, you can see that there are three ways to increase the value to your customer:

  • decrease your price
  • increase your service level
  • improve your quality

Of course, decreasing the price will very likely hurt you in the long-term. Look at it this way – do you want to work just as hard to make less money? Of course not. Yet a lot of small business people do this first.

So you would prefer to increase the value to your customer by providing a higher level of service or quality.

Let’s focus on service since quality is more up to you. Think about these four D’s:

  • dirty
  • difficult
  • dangerous
  • designed

By designed, we mean customized but we had to have a “d-word”! Dangerous might mean “risky”. However, keep in mind that risk is a matter of perspective. The customer may view something as extremely risky but you know how to manage the risk so it’s not really risky at all for you.

Here’s the key to these four D’s: Find something that your customer
doesn’t want to do, doesn’t know how to do, is afraid to do or just simply can’t do.

When you can do that, your customers will perceive more value for your service. You’ll find it easier to charge a premium. That’s more money per hour. That’s bigg success!
 

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Thanks so much for checking in on us today. Please join us next time when we’ll talk about the downside of education. Until then, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00422-062309.mp3

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(Image in today's post by hisks)

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How Much Should You Make An Hour?

By Bigg Success Staff
Updated 3.16.17

Leading-Edge Application
0000105-freelance_switch_hourly_rate_calculator

For all you freelancers, consultants, and service professionals, an hourly rate calculator is a great tool to calculate the rate you need to charge to make the money you want. We originally wrote this post about a tool called the FreelanceSwitch Hourly Rate Calculator, but that seems to no longer be available online. However below are the steps an costs that calculator used to crank out a number for you.

And we found a new tool to plug those numbers into: the Freelance Hourly Rate Calculator. You’ll see the steps are similar, and what is on this page will help you better understand the steps on their page.

Preparation
You’ll need to gather up some information beforehand. Specifically, know what it costs you to do business as well as your personal costs of living. You’ll also want to think about your work patterns – how much you want to work and when. Finally, you’ll want to think about your goals for retirement savings, major purchases, and the like.

Now you’re ready for the hourly rate calculator! You’re less than twenty minutes away from knowing how much you should make!

Step 1 – Calculate your business costs
You’ll be asked, item by item, to enter your costs including:

  • Rent for your office
  • Travel
  • Furniture and equipment, including computers
  • Software
  • Communications, such as internet and cellular phone
  • Insurance on your business
  • Professionals, like legal and accounting services
  • Supplies
  • Promotion
  • Miscellaneous costs not covered above

Step 2 – Calculate your personal costs
Then, you’ll be asked to consider your personal costs, like:

  • Rent / mortgage
  • Daily expenses.
  • Retirement
  • Occasional expenses – repairs, holidays, etc.
  • Other expenses not covered above

Step 3 – Determine how many hours you can bill
With all your costs in, you’re ready to determine how many hours you can actually bill out each year.

You’ll be asked to break that down by:

  • work days each week
  • vacation
  • personal days
  • holidays
  • work hours each day
  • your billable percentage

Step 4 – Set your profit (savings) goal
How much profit do you want? If you don’t have enough profit, you won’t stay in business. If you get greedy, you’re unlikely to attract clients in the first place.

Be reasonable, but still allow for enough money to fund major purchases, like cars, home remodels, or anything else you would like to do.

Step 5 – Click to calculate!
You’ll end up with two numbers – your ideal hourly rate and your break-even hourly rate.

Now you have to use your instinct. What will it take to make you happy? What are clients paying now for services like yours? What’ are competitors charging? How does your reputation, skills, and experience compare to theirs?

These are all factors you should consider in setting your hourly rate. Ultimately, you must rely on your gut instinct, but at least you have a scientific way to get to it if you use this great tool.

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