This weekend, I was hiking with my family in a state park — lots of trees, streams, and ticks. We all had a great time and the summer heat wasn’t too oppressive.
While we were exiting the forest, we were speaking about the economy and business, and my brother Jeff mentioned a quote I’ve never heard:
“Shame on you for not charging enough to stay in business.”
It hit me like a thunderbolt. How many businesses do we encounter that bemoan the fact they aren’t making enough money to survive?
Here’s a little financial equation I use to understand the financials of your business and career.
- How much money do you want to make this year? Let’s say $125,000 to make the math easy.
- Divide it by 50 weeks (you get 2 weeks off for vacation) = $2500 each week.
- Divide it by 5 days a week = $500 each day.
- Divide it by 8 hours = $62.50 per hour. But you have to have 40 solid hours of billing. If not, you need to increase this figure — even double it.
That’s your hourly rate you need to make to pull in $125K a year. It doesn’t take into account overhead, materials, help, etc. But it gives you a generalized idea of how much you are WORTH.
Then I have my clients build their business model the other way:
- How much can you charge each client on an hourly basis? Let’s say $100 an hour.
- How many billable hours a day do you have? Let’s say 5 = $500 per day.
- How many billable days per week? Let’s say 4 = $2000 per week.
- 50 weeks per year = $100,000. A $25K shortfall.
This is important — usually the salary and hourly rate don’t add up. I usually have to tell them to charge their clients MORE MONEY. Or figure out a way to deliver additional services to their clients so they make more money. Can you upsell? Can you sell them more stuff?
In any case — you need to charge enough to stay in business.
What are you charging? Do you need to charge MORE?