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Formula for calculating your rate for small business


I saw someone advertising business card design for prices so low that I'd tell people asking me to work for that to talk to a union rep. Why is it that entrepreneurs will work for less than minimum wage? Seriously this bugs me.

I have been self employed for many years, I haven't had a job since the 1990's and I have seen quotes so low that the people doing the job have more chance of impregnating me than making a profit and keeping their businesses afloat.

For those of you reading this as consumers of services, you will not want to hire companies that underquote, or even people that do. If you want good service you need to allow your service providers the ability to be profitable or else you will be whining about poor service.

I have seen handymen advertising their services at R 150.00 per hour, a rate last seen when I started my first business back in the 1990's. At that rate there is nothing but a wage in it for them, If their tools break , they will not be able to replace them, If their bakkie breaks down, they are screwed. If you contracted that bloke to fix your toilet and he doesn't complete the job, it's your own fault.

I was once the cheapest bloke on the block and then learned some lessons that can never be unlearned, The Bakkie breaking down and not being able to afford the spares, got the T shirt, The drilling machine being stolen and not being able to buy another, I have that T shirt. Not being able to pay wages on Friday because the job took longer and the labour bill was more than I had quoted. Paying rent on the 7th of the month after working 18 hours a day to ensure that the job was done in time, I have that T shirt as well.

If you think something is going to take 10 days, it will take 14 days, guaranteed. So how do you calculate your rate? The first thing you need to do, to bill 8 hours a day, you will need 10 hours minimum, If you are quoting those are non billable hours and depending on your business that can be up to 5 hours. I know I spent 5 hours designing, drawing and quoting for kitchens twice a week at times.

Second working 80 hours a week and taking no breaks will kill you. Your productivity will suffer because you will be too tired to pay attention. The world works 40 and 45 hour weeks for a reason.

The first calculation is how many hours you are willing to work a week. lets say you are willing to work a 9 hour day, to get a monthly average you would multiply that by 22 working days. you absolutely want weekend to spend with your family and to get some R&R. so 198 hours a month. next take of 20% or even 25% for non billable time. at 20% that leaves 158 hours. (rounded down to the nearest full hour) You also need to add in some for the holiday at year end. 3 x 40 = 120 hours, / 12 is 10 hours a month, bringing that to 148 hours. next subtract public holidays, there are 12 a year so another 8 hours to be removed. You are left with 140 hours of productivity a month as a self-employed person that wants to live like a regular working person, but earn more.

Decide what you want to earn every month, Your salary always comes first unless you don't meet the goals you set. Remember the 13th check. Take your desired monthly salary x 13 / 12 to get a monthly salary.

Next work out your over head, Don't forget, you will lose a tape measure, have to fix a sewing machine, pay for fuel, services, phone, internet, accountant, lawyer, business premises, vehicle, web site, advertising and marketing, add on a little for sundries and things going wrong, like a vehicle failure and the need to hire a vehicle for 2 days, or are down with the flu for 7 days. don't forget to add in the salary of the lady that comes in to clean, the coffee, tea and sugar and a little to take a client for a beer or two if you entertain.

Add all these numbers together and divide them by the 140 hours to get an hourly rate. That is what you need to be charging just to break even. Your salary is non negotiable and a cost to the business,

Also you need to learn to say No, bugger off I am not working on Saturday, people are dicks, they don't care if you never see your children.

If you liked this please share it, it really makes my day and I really appreciate it.

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