The Price is Right

 

We help you crunch the numbers to get to the annual salary you want

 Join the Soloist Collective and we’ll send you a spreadsheet to calculate your hourly rate

Join the Soloist Collective and we’ll send you a spreadsheet to calculate your hourly rate

By Susan Johnston Taylor

 

When Soloists first go out on their own, they may find it tricky to price their services. Price too high, and they worry that no one will hire them. But price them too low, and they could go broke.

Here’s the good news: Pricing isn’t set in stone, so you can adjust your prices over time as you figure out what works. And many customers conflate high prices with higher value, so you may find that setting a high fee actually attracts customers who value your services and are willing to pay for them, rather than pushing people away.

Here’s a look at several pricing considerations for Soloists.

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Hourly rate vs. flat fee

Soloists need to decide if they’ll charge customers an hourly rate for their time or a flat rate for a project completed. There are pros and cons to both of these approaches. An hourly rate ensures that if a project requires more time than expected, you’ll get paid proportionately more. But if you’re really experienced efficient, an hourly rate isn’t ideal because you’re not getting paid for that efficiency and the years of practice that went into building that expertise.

Customers may prefer flat fees or project fees because they’re better able to predict what it will cost. Most customers don’t care how long it takes to landscape their yard or bake their wedding cake; they just care about the finished product. The downside with a flat fee is that if the project takes longer than anticipated, you don’t earn any more money. Oftentimes, you might quote a project fee based on the number of hours you expect it to take and then build in a buffer (say an extra 10 or 15 percent) in case things take longer. If a project only takes five hours and you budgeted for seven, you come out ahead and your client is none the wiser.

Some services (for instance, tutoring, nannying, dog walking or personal training) really are based on time spent than projects completed. In cases where the customer expects to pay for your time, you might charge hourly or you might create a package that includes so many hours or sessions per month.

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Setting Your Rate

How do you know what your hourly rate should be? Since flat fees are based on an hourly rate, you’ll need to calculate an hourly rate even if you’re not sharing this with customers.

Here’s a quick formula we adapted from Nicole Fende of Small Business Finance Forum:

Target annual income ÷ weeks per year ÷ hours per week on revenue-generating activities = hourly rate

Target annual income — How much do you hope to make each year before taxes? Keep in mind that this number should be higher than what you made as a salaried employee for reasons we’ll explain below.

You might run the numbers with a few income milestones: The bare minimum that will allow you to cover expenses, a realistic income goal, and a stretch goal for when you have an especially good year or want to challenge yourself.

Weeks worked per year — Start with 52 weeks and subtract time for vacations, holidays, sick time or family obligations. Only count the weeks when you plan to be working.

Hours per week on revenue-generating activities — Only count the time you’re actually tutoring, baking, training, or otherwise engaged in paid activities for reasons we’ll explain below.

Let’s take a fictional Soloist named Chloe. She’s a professional organizer living in Manhattan who hopes to make $80,000 a year. Chloe wants to allow for four weeks of time off (three for vacation and one for possible illnesses, holidays or family emergencies), so she’s left with 48 weeks of work. She also knows that travel time between clients and administrative work eats into her work hours, so she expects to work around 40 hours a week but only spend about 20 hours a week on revenue-generating activities.

Annual income of $80,000 ÷ 48 weeks ÷ 20 hours/week = $83.33/hour

Because Chloe also has to allow for business expenses, she might round that rate up to $85 or $90 an hour.

If this sounds complicated, don’t stress! We created a worksheet that will help you to play around with these numbers and come up with a schedule and rate that works for you.

 Fill out the form to get the spreadsheet in your inbox

Fill out the form to get the spreadsheet in your inbox

Soloist rates vs. employee salaries
If you’ve been doing the same type of work as an employee and you’re now going out on your own, then your own rate should be higher than what you earned working for someone else. Dividing your weekly paycheck by 40 hours and charging the same hourly rate may make intuitive sense, but the numbers won’t add up.

Here’s why: Soloists not only fix people’s leaky toilets, cut their hair, or walk their dogs, but they also oversee marketing, IT, and invoicing for their business. They only get paid when they provide a service to a client but they also need to factor in time for business tasks that aren’t billable to a customer or client. They may only provide services for 20–30 hours a week, so those hours billed to customers need to offset time spent on other non-billable (but necessary) tasks.

The other reason that Soloist rates should be higher than employees is that Soloists have higher overhead. When you’re working in someone else’s bakery, the bakery provides the ingredients, the kitchen equipment, and also covers the employer portion of FICA taxes. But if you start your own catering company, you pay self-employment taxes (which is the employee and employer portion of FICA), you buy the ingredients, and you lease kitchen space.

Even if your Soloist skill is more knowledge-based (like tutoring or personal training) and reliant on tangible supplies, you still need to cover things like health insurance and save for your own retirement. Your Soloist rate needs to reflect those higher costs.

Now that you’ve considered some of these pricing factors, here are other areas Soloists should consider in pricing their services.

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Research the market
If you price yourself significantly lower than other service providers in your area, this can backfire because others may feel that you’re trying to undercut them and clients may dismiss you as being cheap or inexperienced.

Do your homework on what other service providers charge by joining professional associations or doing research online. For instance, PetaPixel lists rates for photographers, The Educational Freelancers Association provides pricing ranges on its website, and Time to Organize offers information for aspiring home organizers. National averages can give you a benchmark, but be sure to adjust your rates based on your region, specific niche, and experience level.

Factor in your costs

We already mentioned your business overhead costs above. It’s easy to forget some of these costs (especially if they’re paid automatically each month), so list off all your expenses including insurance, internet, cellphone, business license (if applicable), and materials.

Of course, Soloists aren’t just supporting their businesses; they’re also supporting themselves, so also list your personal expenses such as rent, food, clothing, and childcare. These expenses will likely be higher if you’re in an expensive area like Manhattan or San Francisco, so those Soloists would likely command higher prices than someone in a less expensive market.

Weigh transparency vs. flexibility

Some Soloists like the transparency of posting their rates online so customers can easily find this information before they make first contact. If someone isn’t comfortable with that pricing, hopefully they’ll go somewhere else. Others prefer to disclose rates after they’ve had an initial discussion with a prospective customer. That way they aren’t locked into one rate and can charge more or less depending on the circumstances. If they’re having a slow month and sense that a client isn’t going to pay top dollar, they could charge less. If they sense that a client is going to be high-maintenance and their schedule is already hectic, they might charge a little more for the hassle.

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Consider premium pricing

Certain scenarios might justify higher than normal rates. For instance, if you’re a hairstylist, you might charge more to travel to a wedding venue and style the bridal party’s hair versus them coming to you. If you’re a dog-sitter, you might charge extra for late pick-ups or for dog-sitting over a holiday weekend. Dynamic pricing fluctuates based on demand, time of day and other factors. Using this model, you might charge customers less money on less popular days so that you can fill your schedule during slower periods with people who are willing to accept those time slots.

Adjust as needed

Remember that as you gain more experience and expertise, you can and should raise your rates. If you charge a flat fee and find that you’re consistently spending more hours than you’d estimated, it’s time to raise your rates (and maybe also look at where you can hone your process to be more efficient). If you’re attracting so much business you can’t keep up, you could also raise your rates and consider subcontracting some of the work to other Soloists. In that case, a higher rate would allow you to pay subcontractors a fair rate while also earning some money yourself for attracting and managing that project.

Even experienced Soloists sometimes struggle with pricing, but if you’ve done your homework and know what the market will pay, you’re well on your way to a pricing sweet spot.