What Hourly Rate Should I Charge?
Seems like an innocuous question but it’s not easily answered. This article gives some useful tips on how to decide on your hourly rate along with a handy online ready-reckoning tool.
Gauge the Market
Obviously pricing can’t be undertaken in isolation. So the first thing you need to do is take a look at your peers/competitors and see what they’re charging.
Do this by Googling your speciality (for example “Osteopathy London”) and check out the pricing pages of the first 15-20 companies listed in the search results. Make a simple spreadsheet of the comparable treatments and their hourly rate. Take an average of these rates to get a feel for the “acceptable” market rate.
However, this may not tell the full picture as you have no sense of the “utilisation” that your competitors are experiencing, which may in turn be factored into their pricing.
What is Utilisation? – It’s the % of available (billable) time that you spend with fee-paying clients. For example, if you intend to work 30 hours per week but only see clients for 15 hours per week your utilisation is 50%.
A competitor may be charging £45/hour but if their utilisation is only 50% their effective income is only £22.50/hour which may do it for them financially but if may not do it for you.
Alongside the “going rate” and the utilisation factor you MUST take into account what you need to earn! Sounds obvious but the “bottom up” approach is a legitimate and logical way of determining your pricing.
To make this a little easier I’ve produced a very simple online ready reckoning tool that allows you to enter your target income and then calculates what your hourly rate needs to be. It also allows you to factor in a level of utilisation and importantly it factors in overhead recovery (i.e rent, rates, admin costs, professional fees etc.)
Fee Income Ready Reckoner
To use the online ready reckoner tool follow these steps:
Click on this LINK. This will take a you to a Google Doc that I have shared publicly – see below
If you are familiar with Google Docs you can make a copy of this document so that you can create your own instance of the tool or alternatively you can copy (Ctrl/cmd-C) and paste (Ctrl/cmd-V) the cells and paste them into Excel.
You should enter your data into the green cells and optionally you can change the utilisation in the yellow cell. The remaining cells are locked so that you can’t edit them.
Start by entering the target fee income that you want. This will show you how much you need to earn per week taking into account 4 weeks of holiday and Bank Holidays.
Then specify how many hours you want to work per day and enter “y” or “n” to “Do you want to work weekends?” Hopefully it’s “n”!
Adjust the utilisation figure. If you’re unsure what to enter make a conservative assumption, say 50%.
Lastly enter your annual overheads (rent rates etc.). This is REALLY important as you need to make sure these costs are recovered in your hourly rate over and above the cost of your time. Even if you work at home I would advise recovering this cost as there is an economic value associated with using a room in your house even if you don’t view it as a genuine cost.
When you have completed these steps you will see what your hourly rate needs to be.
Obviously this doesn’t necessarily mean that this is what you should charge but this “bottom up” approach ensures that you are meeting your minimum financial requirements. Alternatively, if you are considering starting-up it might help you to make your “go/no-go” decision.
Of course the “elephant in the room” in this article is “demand”. If your expertise is specialist and you have a “waiting list” or limited capacity you obviously have the option to bump your rates although for some this may present something of a moral dilemma.
Conversely, if demand is low you have the option to lower prices but if you are genuinely running your practice as a business there will come a point where this no longer fulfills your financial objectives and is no longer viable.
In future articles we’ll take a look at how you can influence “demand” and improve “utilisation” rates.
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