Small Business Help – how to calculate charge out rates, don’t undersell your time

How to calculate charge out rates is one of the most important things to get correct for any small business owner in service industries. That is plumbers, electricians, computer servicing and consulting, even dentists, accountants

Charge out rates - do not undersell your time

and lawyers. Charge too much and you may lose sales, too little and you will not make a living. So it can be a balancing act but when it boils down to it, is there any point of being in business if you are not making enough. It’s quite easy to undervalue yourself and/or your employees and it can require courage to stand up and say ‘no I am worth more’.

Here is a very simplistic guide for working out a minimum rate it ignores profit from any goods you might sell, so has limited usefulness but then aim here is to get you thinking!

How to calculate charge out rates

Add up any costs of your business, that you cannot charge separately for a defined period e.g. do you charge extra for mileage? so do not include vehicle costs.

Do you incur costs such as phone, power, rent, bank fees, accountancy fees, subscriptions, advertising, printing and stationery, legal fees…. all these are costs which your charge out rate should cover.

Take the total for the period (could be a year), and divide by the total number of hours that you estimate that you will work. This is the amount you need to charge BEFORE you start making any money and before income tax. It’s a little scary isn’t it.

Of course if you able to sell products along with services then some of the ‘costs’ can be paid out of the profit of selling the goods, so it could be a little less. Some approach their businesses in that the profit from the sale of goods will pay for all costs, therefore the charge out rate will be the owners income.

As mentioned earlier, taking into account what others charge and what the market can pay is important, but in the end profitability is vital.

Here’s some helpful advice from an article I read recently. Written by Roland Reinhart , in regards to charging out on a job by job basis, rather than a set rate for say, a year.

Just Say No

As a business owner, there are too many projects and things requiring my attention. To run a profitable small business, I have to say NO especially if:

I do not believe the prospect’s business model will work.

I honestly am not confident I can achieve success for a particular prospect.

My “spider sense” starts tingling that the prospect will be difficult to work with.

My Most Important Tip

I question myself frequently throughout each workday:

“Is what I am doing right now profitable? Will it advance my business in some way?” click here to read more

I hope this post has been helpful in giving you encouragement on how to calculate charge out rates and not to undersell your and your employees time.