22 Nov 2007
Establishing your Fees
"You will be paid in direct proportion to the value you deliver according to the market place." T Harv Ecker
To make a living at what you love, the key is to assess what you truly desire as re-embursement. You will be rewarded with what you desire most. What do you value? It is gratitude, appreciation, recognition, happiness? Do you want to feel good about yourself? Do you want to make a difference in the world or help people? Or do you desire money?
Do your values focus on idealistic spiritual or esoteric concepts? Few spiritual people would list money as their primary desired reward. They prefer to feel good about themselves spiritually, rather than materially. Unfortunately, this can sabotage cash income and cause severe financial restrictions.
There is no negativity in money honorably gained or honorably used. Can your adjust your ideals to include money as part of your reward, or as a tangible barometer that demonstrates you have successfully achieved your values and ideals?
What should you charge for products? Professional fees and wholesale or retail prices are based on mathematical formulas. Sometimes this is easy to establish. Sometimes it can be very complex.
In the case of merchandise, a suggested retail price may be recommended by the manufacturer or distributor of the products you plan to sell. You can follow this guideline, or choose to sell the merchandise at a lower rate.
Retail prices are calculated to take into consideration overhead and operating expenses. The retail price factors in the cost of goods plus any shipping and packaging charges. The standard mark-up is 100%, or double the wholesale cost, however, certain products such as books, groceries, nutritional supplements and expensive items often are priced with a lower mark-up. Some products, such as perishable goods like fresh flowers and produce, must have a higher retail price to factor in preparation time, limited shelf life, as well as wasted goods through spoilage.
If you are designing or creating your own products, you must consider the cost of materials, plus a labour factor. Additionally, the skill required and the quality of the finished product will need to be factored in to the end price. This is your wholesale cost.
Often the labour charge is very low on hand-made goods. Devising a system of mass production will reduce your labour time per unit. This will permit a higher profit. You should establish both wholesale cost and a retail price.
What should you charge for professional services? Schools, professional organizations and licensing boards often set standardized rates for their own industry. Graduates then follow established guidelines to charge for their services. Legal, medical and dental fees are examples of this.
However, when you are doing something unique or unregulated, you may not have these guidelines to follow. How can you establish your own rates or prices? There are many points to consider.
Look at the investment in time and money that you have put into learning your skill. A therapy or art that takes considerable time, knowledge, expertise, talent or skill to perform, should be worth more than a technique that can be learned in a weekend.
What are "overhead costs"? "Overhead" is the sum of fixed operating expenses such as rent, utilities, telephone, insurance and property taxes. If you are located in a commercial unit, or pay for space on a per-use basis, your expenses will be much higher than if you operate from home. This cost must be reflected in your fee.
To calculate how much of your fee must cover overhead, take the total monthly costs and divide by the number of services you expect to perform in one month. For instance, if you spend $500 per month on overhead, and you expect to perform your service 60 times overall in that month, you will have to add about $8.50 into each fee to cover overhead.
If you choose to operate a home-based business, you will establish your total monthly overhead by calculating a percentage of your housing costs. Add together rent or mortgage, property taxes, utilities, telephone and insurance. Divide this sum by the total number of square feet in your premises.
For instance, if your home measures 20’ X 60’, it totals 1,200 square feet. Let’s say your overhead adds up to $1,200 per month. This means it costs you $1 per square foot to run your home each month.
Now calculate how many square feet of your home will actually be used for your business. If you use a 12' X 12' room, plus a 5’ X 6’ washroom, the designated business space totals 174 square feet. Multiply the business space by the overhead cost per square foot.
In this instance, 174 square feet @ $1 per square foot = $174 per month. This is your total overhead cost for business purposes. This figure will also be used on your income tax statement.
Commissions in lieu of rent If you choose a fee-for-use-of-space system, you will pay a fee for each time you use that space or a commission each time one of your products are sold. A proprietor may charge a flat hourly or daily room rental, or you may be charged a percentage of your professional fee or retail price.
Many hotels, spas, and medical professional offices exact a percentage of your fee to cover concierge services, rent and utilities, business administration, accounting and operating expenses. They look after all the business for you. All you need to do is show up on time and do your work.
While it may seem as though the percentage you pay is high in proportion to your take-home wage or the profit you receive for your product, this is really the simplest and often most profitable way to operate your business. It requires very little bookkeeping and no cash outlay for furnishings or business start-up costs. Your overhead and operating expense are combined in one simple fee that may actually be less than what they would be if you were in your own office. Any moneys you receive are pure profit.
This is an ideal arrangement if you want to start your own business and have no money, credit or experience. No cash outlay is required, since you pay expenses only as income is generated. Overhead is often much lower. With only one operating expense, bookkeeping is greatly simplified. Profit is inevitable, because your operating expenses are always a fixed proportion of your fee.
There are added benefits. Often you acquire a ready-made clientele, plus support and mentoring from established professionals within the facility. Your reputation is also enhanced by associating with established professionals. You can take advantage of built-in concierge services to book your appointments and greet your clients. As a result, you present a much more professional appearance. Overall, you gain more freedom and greater success with much less risk.
Does your service require the use of expensive equipment? An investment in schooling and equipment has to be factored into your fee. You should be compensated for your financial outlay.
To recoup your investment, calculate your total expense for schooling and equipment. Divide this amount by the total number of services you expect to perform over a period of 2.5 years. Add this amount into your fee. In 2.5 years your initial investment will be completely re-paid.
Let’s say you have spent $2,500 on your schooling, plus $1,000 for equipment required to perform your service. You expect to perform your service 3 times a day, five days a week, with a total of 2 weeks off annually for holidays. At this rate, you will perform this service 1875 times over 2.5 years. To calculate the cost per service, divide $3,500 by 1875. Rounded out, this shows you would need to designate about $2 of your professional fee toward repayment of this initial investment.
Do you require employees, such as a receptionist, bookkeeper or sales person? Do you have additional expenses, such as those for office and maintenance? Laundry for towels and sheets, toilet paper, and products such as aromatherapy oils must also be factored in on a per-client cost basis. All these operating expenses must be considered within your own professional fee if you do not charge separately for them.
Now calculate your own wage into your fee. On a per-hour basis, what is a fair and reasonable hourly wage for someone with your level of experience, skill, training, and professional reputation? If you were an employer, what would you pay someone to do this service? If you were a consumer, what would you be willing to pay for this service? Take into consideration your living expenses, how many hours a day you want to work, and much you must earn to live comfortably.
Your fee may raise incrementally as your experience, skill and reputation increase. If you are a novice, your fee or wage should reflect this.
Add together your wage and all the other costs to determine your fee-for-service rate. Does this rate seem fair? In this case, if you have calculated a wage of $15 per hour and plan to work at home, you would charge a fee of $22. This would cover $2 for equipment and schooling, $3 for overhead, $2 for other expenses, and a $15 hourly wage. If, however, you plan on renting a commercial establishment and require a secretary, office space, equipment and furniture, your fee would have to be considerably higher.
Finally, check the fees currently being charged for similar services. Are they higher, lower or similar to your rate? Would you be willing to pay this amount for your service? Be objective and fair. Will your competitive rate attract business to you? Will charging more cost you potential clients or attract clients? Is your rate fair to you, as well as your clients? ~~
(c) 2003 This article was excerpted from the A-Z Self-Employment Guide for Complementary and Alternative Health Professionals It contains all the great information in this website and MUCH MUCH MORE! Buy this book
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