Pricing Your Products or Services 3

What is nonbillable time?

How can I make accurate sales or cost estimates or set fees if I’ve never run my own business or been involved in marketing products or services?

Here are several ways to get the information you need to predict sales and costs:

• Talk to other business owners. Find out what they charge, and ask how much they spend per year on marketing, advertising, office overhead, etc. At the end of this chapter you will find a list of typical fees charged by different types of businesses. The fees will offer you some guidance, but you should try to get information about prices in your part of the country as well.
  
• Contact industry or trade associations and ask if the association has literature that will help you determine what business expenses you may incur and what the going rates are for the general type of product or service you plan to sell.
  
• If you own a modem, check out online forums (special interest groups) such as those that are part of Business Know-How or the professional forums area on America Online. Look for active newsgroups and mailing lists (email discussion groups) for industry, too. Yahoo! Groups (http://groups.yahoo.com/) and Topica (http://lists.topica.com/) have numerous industry-specific mailing lists. In addition, you can usually find the top industry discussion lists by searching Google or Yahoo for the industry name and the term, discussion list. So, for instance, you can find discussion lists for the advertising industry by searching for advertising discussion lists on either Google or Yahoo. Owners of small and homebased businesses use these message boards and discussion groups to exchange information and network with one another. You'll find many of these people will readily share information about pricing and business expenses.
  
  
• If your business is in the communications industry, consider buying one or more of the pricing guides available at reasonable cost from Brenner Books (http://www.brennerbooks.com). They have extensive data on rates in these fields: writing, editing, scanning, graphic design, DTP, prepress, multimedia, web services, virtual assistance.
  
• Read employment ads and call several employment agencies to determine what hourly salary you might expect providing your service as an employee in someone else's business in your part of the country. Check salary surveys and data available from industry publications. One of the best resources for salary data is Salary.com (http://www.salary.com). Search industry publications for annual salary guides, as well.
  
• Remember to add in the cost of employee benefits, office overhead, and an allowance for a profit for the company.
  
• Gauge your fees according to what other service providers charge you. For instance, if local services in your area charge an average of $75 an hour for labor (car repair, computer repair, etc.) consider setting your prices in the same range.
  
• If possible, run the business part-time on a small scale, keeping accurate records of all expenses and income. Also keep track of how much time it takes you to complete work or make sales and how long it takes you to collect from your customers. Review this information once a quarter and make any necessary adjustments in your fees.
  
• If you sell a product, comparison shop. Check prices of similar products in retail stores, discount stores, shopping clubs, warehouses, and mail order catalogs.
  
• Test market: your product or service. Advertise it in one publication or do a small mailing to test your response rate.

Is it better to charge for a service by the hour or the job?

There is no "better way" to charge. In fact, there will be some instances when you charge by the hour, others where you charge by the job, and perhaps still other times where you work on a retainer basis, or get a "per head" fee (for teaching seminars, for instance), a contingency fee, commission (on sales or placement), or royalties.

• Charge by the hour if the job is one where the customer is likely to make changes in the job specifications while you are working on the project. Here's the type of situation you need to be wary of: A copywriter, after spending half a day at a client's office getting all the information he needed to write the copy for a brochure and sales letter for one of the company's new products, spent the better part of a second day writing the material. Then, before he had a chance to deliver the assignment, he got a call from the company's marketing manager who informed him the company had decided the mailing should include a limited-time offer, for a large discount on the product. The entire mailing had to be redesigned and rewritten. Had the writer quoted a flat rate on that job he would have lost at least one full day's earnings.
  
• Charge by the job if the client won't agree to an hourly rate. Or, if you know how long it will take you to do a certain type of job (such as write a publicity release), it is often more profitable to charge by the job. For instance, if the going rate for writing a short publicity release is $200, and you can write the release in an hour, it's obviously better to state a flat fee of $200 for writing the release than it would be to charge $200 an hour for your work.

TIP: On corporate or other projects where many changes are likely, due to either a difficult client or the need for approvals from multiple department heads in a company, have someone at the company "sign off" on the work (sign a piece of paper approving the work and authorizing the next step or acceptance) at each phase of a project. This will allow you to bill for changes made at a later stage that should have been made in early stages of the project (and perhaps help keep you from being held responsible for errors). Be sure to plan your initial estimates to allow for frequent changes, or set a cap on the number of customer changes or the number of hours you'll put into the project for the stated fee. Take the time to educate your client in advance about the amount of time and cost that could be involved if the client changes their requirements partway into the project.


What problems are associated with charging by the job?

The main problem with a per-job or per-page rate is that a job can look deceptively easy (a directory with relatively few words per page, for instance) but can turn out to be extremely time-consuming, particularly if the client is difficult to work with. The way to solve the problem is to spell out very clearly (in writing) what you will do for the project rate and what services or changes in the project will carry an additional fee.

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