How did you come up with your current fee structure? Perhaps you looked at what your competitors were charging? Maybe you’re basing it on what you used to earn as an employee. Either way, those methods are unlikely to reflect the realities of your business.
In this post, I’ll help you work out your true running costs and the minimum you need to charge. In parts 2 and 3 of this series, we’ll consider how you can increase your income by demonstrating value to your clients.
What are your fixed costs?
First, you need to work out your essential outgoings – the money that pings out of your account each month. Depending on what your business does and where you do it, these might include:
- Office space
- Business rates
- Banking fees
If you’re a company director, you probably pay yourself a small salary and hopefully make pension contributions, too. It’s good to treat yourself like an employee and prioritise these costs each month. After all how much loyalty could you expect from an employee if you didn’t pay them?
Here are my figures to give you an idea:
So, I need a turnover of £1,697.27 each month just to cover my fixed costs. And to reiterate, I’m including myself in those fixed costs. If I can’t afford to pay myself, it’s not really a business.
What are your variable costs?
The last exercise was quite straightforward. It gets trickier when we address our variable costs. These might include:
- Professional support or outsourcing
These costs can vary from month to month and often they’re sporadic. The easiest way to calculate them is to go through bank or credit card statements for the last two years. Work out the annual total for these categories, then divide by twelve to get an approximate monthly figure. Here are my figures:
Added to my fixed costs, this is a total of £2,052.27. Although I could get by on £1,697.27, I need to invest in myself and my business to keep it viable. Therefore, my minimum monthly turnover is £2,052.27.
How much paid work can you do?
One of the major challenges of self-employment is that you have to do everything – marketing sales admin bookkeeping – at least until you can afford to outsource it. This drastically reduces your billable hours.
In my case, I work 6 days a week. This is how it typically breaks down:
Marketing – 2 days
Admin and accounts – 0.5 days
Actual paid work – 3.5 days
That adds up to 14 paid days each month. So, I need to earn a minimum of £2,052.27 over 14 days – that’s £146 per billable day.
Your work patterns will be different, especially if you have caring responsibilities, but you should be able to use this approach to arrive at a minimum figure for you.
How does that compare with what you’re actually charging at the moment?
Remember, this is the minimum. I’m guessing you started a business so that you could earn a decent living. In my next post, I’ll explain how you can determine a realistic income and reflect this in your prices.
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