How to Figure a Minimum Hourly Price for your Home-Based Service Business
I often get asked by home-based business coaching clients if they are charging their clients enough. Several years ago my uncle from Denver, Colo. taught me how to calculate my pricing to make sure I covered my expenses. This breakeven estimate made by business profitable back then and I still use it today.
Here's How to Figure a Minimum Hourly Price for your Home-Based Service Business -
1 Add ALL your business expenses and your portion of your personal expenses for a year. This is your Total Yearly Expenses.
2 Divide the total yearly expenses by the number of weeks you want to work in the coming year (excluding weeks for holidays, vacations, and sick days). This figure will give you your Minimum Income Needed Weekly.
3 Now decide the average number of hours you want to work a week. (Not all hours worked are billable to clients because of administrative, marketing, accounting, education, etc. -- usually no more than 60 percent can be billable and many times it's a lot less.) So multiply the total of weekly hours by .60. This gives you the number of Billable Hours a Week.
4 Finally, take the Minimum Income Needed Weekly and divide it by the number of Billable Hours a Week. This gives you the Minimum Hourly Rate you can charge for your service.
5 Try to set your hourly rate higher than that final number.
Here's An Example...
My total business and personal expenses is $60,000. I will work 49 weeks a year, allowing one week for vacation, one week for holidays and one week for sick days. I am going to work 40 hours a week with 16 hours a week for accounting, research, marketing, scheduling, computer problems, etc. $60,000 divided by 49 = $1,224 minimum Income Needed Weekly. 40 hours a week x .60 = 24 Billable Hours a week. $1,224 divided by 24 = $51 Minimum Hourly Rate.
Does any one have an easier way to calculate your breakeven point for your service business?
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One Response to “How to Figure a Minimum Hourly Price for your Home-Based Service Business”
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Nice run down on arriving at your breakeven. Sometimes I don’t have a lot of time to re-calculate or am just curious where I am at the moment, so I take my monthly “nut” (how much it takes to pay all of the bills) and divide that by 4 weeks, then divide that by 5 days to determine how much I need to make each day in order to cover the overhead. From there I can decide if I am working 5 hours at $50 or want to up the price per hour to $75 and work three hours to cover costs and the overflow will go towards savings, retirement, etc. An example would look like this: $5000 needed each month / 4 weeks = $1250 / 5 days = $250 per day / 5 hours billable work @ $50 per hour. This also helps calm down any overwhelm that might sneak in. It is also nice to be able to go beyond with abundant thinking by allocating $150 of the daily amount needed to subcontractors or employees that can help bring in the revenue – then I don’t have to work so hard~!