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Old 02-07-2006, 05:31 AM   #2 (permalink)
Kitchen Designer
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Join Date: 02-02-06
Location: At a party in my pants. Sydney, DownUnder
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G'day Klaas,
It's always hard to determine what to charge if you don't really understand the basic principle of making money. So let's take a look...

Thats my price, take it or leave it! - by Cash Monet

In a nutshell, to work out your selling price you must know two things. Cost of production and profit margin.

Sell price of Klaas's Product = What it cost to Klaas to make the product + Add a bit more for Klaas because he's not doing this for free you know!

Cost of Production
If you are to do this for a living, you need to know what it costs to open the door each day at Klaas Koopman Enterprises. Since you do not process raw materials your costs of production will overheads and time.

Overheads
Will you be working from home? Your overheads will be much less as you wont have the higher cost of rent/lease of commercial premises etc to worry about. At home your overheads will be rent, electricity, internet, hosting, phone, insurance, marketing costs and depreciation of equipment. Roughly add up all of these costs over a year and write down that figure.

Time
Well you want to be pulling a wage out of this dont you. And a worthwhile one at that. First you must work out how many hours you want to work a week. (let's say 40 hours). 40 hours x 52 weeks (yeah, you want holiday pay as well) equates to 2080 hrs a year. You will probably spend 70% of your time doing real work and the other 30% dickin' around on forums like these so your total billable hours per year will be 2080 x 70% = 1,456hrs.

Lets work it out
Lets say your yearly overheads are $20,000. To work out hourly overhead rate divide $20,000 by 1456 hrs. Around $14 per hour.

How much is Klaas worth per hour? Only you know that so dont be shy here. Lets say your worth $45 per hour. OK then, what about my profit margin? What to charge? How about we put a value on your expertise. What makes you different from your competitors? Is it because you are a qualified or highly trained web designer? Do you have a high profile in the community? Can you deliver the goods quicker than your competition? Yes? Well damn it, you have to be able to charge a premium for the extra value you bring to your client. So, lets say we add a 25% profit margin for the value of Klaas's high profile in the community. Add $14 overhead + $45 hourly rate x 25% = $74 per hour.

Well then, there it is. $74 per hour. Nice money to get if you can. But can you get it? We really have to see if your price can be justified.

You will have to establish what the market is willing to pay. You don't want to be too low and you don't want to be too high either. Do a bit of sleuthing to figure out what the benchmark is (and what added value is attached to these prices).

OK,so you are getting some leads and you go back to the client and submit your price. If your price is too high you can either lower your bid or change your marketing to find clients that will pay more for your services. The problem with bidding too low is that you may get more work but you will be working your crazy Dutch ass off. And I know you Dutch are crazy because you live 3-4 metres below sea level

Hope this helps...
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