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How Should You Charge When Running a Business?

July 22nd, 2007 by shawn · 3 Comments

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How much should you charge for a job? Often, this isn’t easy to figure out if you’re a new entrepreneur. You quickly realize how often you forget things or how often unexpected things come up – things that cost you time!

While running a video editing business, I learned the amount of time a job can take to complete can be unpredictable. Additionally, I learned that the unexpected often rears its ugly head – resulting in surprises you won’t like such as a job taking longer than you intended (which costs you money).

So how do you properly account for the unexpected? How do you structure your fees?

There are a few things you can use when you come up with pricing:

  • A setup fee. You can call it anything you like, such as “setup fee” or “job fee” or “setup cost” or whatever sounds appropriate for your line of work. This particular pricing entity allows you to cover your costs in one shot, regardless of how the job goes or how much someone orders. So if you had a post printing business you could charge a one-time setup fee to create a poster and a separate fee for each poster or 100 posters you print. You always make money after the point the customer has paid their setup fee, as opposed to you building all your costs into the printing of each poster. (Doing it that way will make it very difficult for you to ever make money.) A setup fee also does something else: it causes the customer to invest in you as a regular supplier of that good. So if I have a t-shirt design and I pay someone to create a screen and print my shirt I’m gonna use that same company over and over again since they made the screen and charged me a one-time setup fee.
  • A minimum amount. If a job isn’t likely to get you repeat business, you structure your fees with a minimum order amount. This ensures that even if you get a little job, you still pay yourself.
  • A membership fee or contract fee. If you run a service type business this is easy, but it can apply to other businesses as well. If I do SEO work or maybe IT consulting, I can either charge by the hour, I can quote them by the job, or they can pay a set amount each month and get my services for x-amount of hours. They are a member of my Preferred Customers or whatever I want to call it. It works out well for them if they use my services every month because I give them a slight discount by prepaying, and the benefit to me is that I’m paid at least that amount every month! For any time they need me beyond the included amount of hours, I bill at regular rates.

When you set your prices you need to include the following (at the very minimum):

  1. Cost of materials
  2. Cost of overhead
  3. Cost of your time

You can probably think of other things that should be included, depending on what you do. If you’re in a highly-skilled field, include the cost of your skill as an added factor. If your job is in high demand, include the demand for your type of work as a factor.

Whatever method(s) you choose to set your prices: always get paid for your time, first. Never allow yourself to work for less than the dollar value you give an hour of your time. If nothing else, use that one rule when setting price and it will put things into perspective quickly.

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    Tags: Business How-To's · Running a Business

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    Comment by KirkwoodDetroit
    2007-07-26 19:46:49

    A setup fee is something we just started doing, and it has been extremely effective in improving our bottom line. Also any monthly systems we have developed have been great for business, such as SEO monthly (and we also do marketing package).

    To be able to COUNT on a certain revenue stream each month is so valuable, I think more people should consider pricing that way.

    Even web designers, a monthly “maintenance package” would be a great way to keep money coming in each month. Even if they allocate 5 hours or less.

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    2007-08-02 09:10:59

    This kind of pricing is for self-employed business, not for big business. A big business like corporate or franchising will have different setup fee. At least, they don’t ask pay per job.

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    Comment by Kersson
    2007-08-02 22:17:25

    That’s true. When you have to give a quote in advance, you always forget some factors which increase the final price. I think only experience can help you to be more accurate next time.

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