How much to charge is one of the most common questions asked at FuelRCA. And it is one of the most difficult to answer, as each discipline has its own internal pricing structure. Max Comfort guides you through his formula for charging with confidence.
On a psychological level, deciding what to charge poses difficulties as it presses our sensitive self-worth buttons and confronts us with the reality of what we have chosen to do to make a living. It challenges our confidence in ourselves and our fears around money. Let us consider that before we explore what to charge.
Money is something you need to be acutely aware of, as there will not be the regular payment at the end of the month which people in ‘proper’ jobs get. You will have to plan well ahead to make sure enough comes in every month – and not too much goes out. You will have to confront your issues around money. The following thoughts may help:
Money and fear are closely related. We fear that:
• we will not have enough of it
• it will be stolen or lost
• someone else will make more than us
• we will lose the ability to make any
• we will spend it unwisely
• we will end up on the streets in a cardboard box
Since the beginning of the Industrial Revolution, we have increasingly exchanged our ability to provide for ourselves with the ability to pay others to do things for us. Thus, money has become the umbilical cord connecting us to wellbeing. Without it we cannot eat, have shelter or clothe ourselves. Through interdependency and increasing reliance on vast conglomerates, we have become distanced from any involvement in the supply of our most basic needs and reduced our self-sufficiency to almost that of a helpless baby.
We need to get money in perspective. It is very important, but simply making more and more of it in order to get more things is not what life is about. Increasing numbers of people are seeking deeper meaning, purpose and quality of experience in their work. Witness, what is known as, downshifting.
Abundance in our lives is not the result of having lots of money. Money is part of having lots of abundance. We know that getting more and more money does not bring happiness. So many people have tried and failed. Abundance could be, for example, a beautiful spring morning, a walk in the woods, a lover’s smile or a child putting its hand trustingly in yours. Abundance, like so much of life, is an attitude. Abundance is about being satisfied with what one has and not always wanting more. In any case, the world cannot provide any more – we are running out of finite planetary resources.
So, back to what to charge for your services. This is an area of business which causes more soul-searching and doubt than any other. How people answer that simple yet crucial question, ‘What is your day rate?’ or ‘What would you charge for that?’, can make or break a business relationship.
A major aspect in choosing to use someone and their services is their confidence. The reassurance they bring to the task tells you that you made the right choice.
How do you get to the point where you can answer those questions, ‘What is your day rate?’ and ‘What would you charge?’, with total confidence and reassurance? If what you are charging is reasonable, then you can respond with your head held high and no trace of doubt. If you are not ripping people off, not grabbing what you can and not focusing solely on your Ferrari fund, then you have nothing to fear.
A simple formula for deciding what to charge (and a few basic rules)
You should only charge at a rate which is based on what you actually need in order to keep yourself in the best condition to provide the service the client is buying. More on that below. If you are not greedy, then when you quote a rate, you can do it with complete confidence. You know it is fair, so you do not need to say ‘Would it be alright if I charged you £Y?’ in a voice full of hesitancy and doubt. Instead you can say, ‘My rate will be £X’ in an assertive voice, as if it is as normal as buying a newspaper. Your client will not be impressed or reassured by the first approach; they will be by the second. Their confidence in you is crucial, and the way you quote a rate is a great opportunity to reinforce that confidence.
The formula consists of three elements:
1. What the market will stand
What the market will stand depends on what people are used to paying. If there is a recognised rate for the job, there is not much you can do to change it. But you should do all you can to find out what it is, what others are getting paid and what they are doing for the money. Or not doing. It is possible that your service is subtly different from theirs or that you are offering added value in some tangible way.
2. The perceived value of your service or product
Perceived value is a fascinating subject. For example, I may go along to a small charity that has asked me to work with them, and when they ask me what I charge, I say, ‘My charity rate is £400 a day plus VAT.’ If they feel they cannot afford the fee, they may be shocked and decide to drop the transaction.
The next day I might visit the CEO of a large organisation and we agree to work together. They then say, ‘Max, what is your day rate?’ If I say, ‘£400 plus VAT’, they will immediately show me the door and I will never hear from them again. They cannot conceive of how I could work for that money. They are used to paying from £1,000 to £3,000 a day to their consultants. They will suspect that at a mere £400, I cannot be any good.
I am not suggesting that you rip people off. But you have to operate within the context you have chosen. If you charge too little, your clients will see you as lightweight or uncertain and they will not value you, however good you are.
3. Your income needs
You can work out your needs simply by adding up all your current personal and business costs, adding in the things you would like in order to thrive (not merely survive) and then adding a further 20 per cent for tax and National Insurance. Then convert this into a day rate by dividing the monthly sum by however many days you are going to work each month. Remember that, despite your strong convictions to the contrary, you are probably not superhuman: you will need some sleep occasionally and time to do things like filing. Be realistic about how many days a week you will spend earning the money.
Now add the three totals together and work out the average:
|Element 1||What the market will stand||£.../day|
|Element 2||The perceived value||£.../day|
|Element 3||Your income needs||£.../day|
|Divide the total by 3||£.../day|
The final figure is your target day rate. If you have worked it out based on the formula above, it will be a fair rate. Stick to it! Use it in your business plan to work out your costs.
People who make unique works (paintings, sculpture, fashion, etc.) will need to adopt a different approach. You must base your charges on the time it took to make the piece (using the formula above where possible or applicable), the costs of the material and – difficult, this – what others are charging for ‘similar’ work. I am told there is a system in Germany called the Kunstpunkt: the cost of a painting is calculated by counting the number of courses the artist has attended, the degrees won and the exhibitions already held, and this sum is multiplied by the height and width of the work! Sadly we do not have such an organised system in the UK, so pricing is down to gut instinct. Do not quote too low - it is easier to come down than to go up. Talk to others in a similar situation to see what they are charging.
Bear in mind too that sometimes it is acceptable – even wise – to charge less, simply to get your work into an exhibition, gallery or collection that will up your profile. A couple of years ago, I was at the Royal Academy of Arts School Final Show, and Saatchi marched in with his cheque book and bought an entire body of work from one of the students for £6,000. Some people were outraged. ‘Surely it is worth ten times that!’ they cried. Others said, ‘And he paid you as well (so well!)?’ You decide!