Have you recently done the Founders Club Archetype quiz, and realised you’re a multi-purpose mogul? So that explains those three soon-to-be-successful start-ups that aren’t making any money. Side note, if you haven’t done it yet, don’t miss out! Finding out what type of founder you are will give you the clarity to level up.
One of the hardest parts of being an entrepreneur (besides putting pants on sometimes, you know…to break the cycle) has got to be working out how much to charge for your time. Also, “friends rate”…is that actually a thing?
We get it.
Sandy is asking for yet another mani and you can’t tell her again that it’s because you don’t have any stock of “sunset orange’.
Whether you sell a product or provide a service, working out how much to charge starts with knowing what your resources cost you. The next step to have an idea of what profit you want to make.
I mean, the saying “time is money” wasn’t coined by someone who didn’t know their own worth. Everything you do costs resources. These are defined as materials, labour or overheads.
- Labour: the amount of physical, mental, and social effort used to produce goods and services in an economy.
- Material: physical and concrete ways that help to achieve a goal.
- Overhead: refers to the ongoing business expenses not directly attributed to creating a product or service.
Chances are you will always have some form of overhead cost. Accept this early on. The cost of what you provide is determined by the cost of the resources used to create it.
Pro Tip: Believe it or not, money and time are actually not resources! They will either allow or constrain the use of your other resources.
Here’s how it’s done:
- Identify what needs to be done
- List all of the resources you will require
- Determine how much money you will need to use on each resource (point 2)
- Estimate how much time it will take you to get to your desired result (point 1)
Pro Tip: The amount of the materials you need, will end up largely determining the amount of labour you will require.
More specifically, if you are just providing a service:
- Add up your labor and overhead costs
- Add the profit you want to earn
- divide the total by your hours worked
This is the minimum amount you would want to charge. This amount allows you to cover the expenses of your resources, pay yourself a salary, and then earn a profit.
Pro tip: Consider your resource costs, the current market rate, your perceived self-worth, and the time you’ve invested in your studies. This will help you land on a higher price with a larger profit margin. You will get to feel this time will be worth your while and attract a more fitting clientele.
Remember, when someone says “it’s too expensive” this means it’s too expensive for them. While feedback is necessary, don’t take on everyone’s personal opinions in establishing the value of your business and skillset.