When I started my first technology consulting business in 1995 I set my rate at $100/hr. The reason for this was very simple. I thought it was large enough to be taken seriously as a professional.
I also thought it would make me a lot of money. After all, billing 40 hours/week at $100 was a very cool $4,000 per week. Times 50 weeks = $200,000! Sign me up! Of course that didn't happen.
Lesson One: If you bring $100 worth of value to a job, no one will bat an eye at paying $100/hr for labor.
Lesson Two: You never bill 40 hours per week. In fact, you're lucky to bill 20, especially when you start out.
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A really, really good technician working for someone else and doing most work remotely can often be 80% billable. That's 32 hours per week. 65% is much more common. That's 26 hours per week. Managers are frequently in the 40% billable range. Owners who do sales are frequently 20% billable or less.
The point is: You cannot bill 40 hours a week. Track it. Be rigorous and honest, and you'll see that you're lucky to hit 50%.
Now consider your hourly rate. See the chart.
The average income reported in the U.S. is about $75,000 per year. The green blocks add up to about $75-99,999 per year. As you can see, there are two simple ways to get yourself in a green cell: Bill more hours or charge more per hour.
Plot the number of hours your realistically bill in a week. If you're starting out and you're a sole proprietor, you are probably billing 20 hours or less. As you can see, you'll never reach $75K charging $50 or $60 per hour.
If you're charging less tha $75/hr, I want you spend a lot of time staring at these numbers and being honest with yourself. What do you really, really charge? How many hours do you really bill?
If you use QuickBooks, I encourage you to invoice every hour - even if it's free. You don't have to send zero-dollar invoices to clients, but it's pretty good P.R. if you do. But I want you to do this for yourself: Invoice every single hour. At whatever rate. If you give hours away, write that down as well. QuickBooks will allow you to enter five hours at zero dollars.
When you do this, you'll be able to run report / Sales by Item / Detail (or summary) and see exactly how many hours you invoiced, and the total income. Let's say you work 50 hours per week. You bill 25 at $75/hr. And you don't send bills for another 25 hours at $0/hr. Your effective billing rate is $37.50/hr.
But again, I bet you're not billing that. In fact, many people tell themselves they're doing great - until they run the actual numbers. It's much more likely that you have an occasional great job and a lot of weeks very really bad numbers.
The market is excellent for technicians and everyone in I.T. Services. Be honest: If you can't earn more than $100,000 in taxable income on your 1040 income form, STOP playing around in this industry and go get a job.
When you're ready to commit to a career as an individual consultant, you need to do a few things. First, charge enough to be taken seriously. Second, get yourself enough of an education to be worth at least $100/hr.
I welcome all the new people joining this industry. But please know that there are lots of people who have a lot of experience and charge more like $150-175/hr. Make yourself worth that, and charge those rates.
It's a lot easier than trying to squeeze out impossible hours at almost-impossible rates.
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BTW the other colored cells are as follows:
Yellow = $100K - $124,999
Blue = $125K - $149,999
Orange = $150K - $174,999
Gray = $175K - $199,999
Keep in mind these numbers don't account for you having any time off. So, you wouldn't have any time to take care of yourself or your family if they got sick. When someone works non-stop eventually they break in some form. Make sure when your calculating your rate, you are allowing for life to happen. If you don't, your simply working at a job for a terrible company that doesn't care about it's employees.ReplyDelete
Absolutely true. Work/Life balance!ReplyDelete
Great post and probably one of the timeliest pieces I've ever read. Currently plotting to really make the jump from break-fix to MSP and not a week ago I bought/read MSIAM and started thinking about raising rates (currently one of those sub 75/hr guys myself). Funny enough the numbers I arrived at are right in-line with your table so it's great to know I should hopefully be "in the ballpark".ReplyDelete
On the subject of value, I think my (and probably others) biggest hurdle is having enough confidence to charge that kind of rate. I'm entirely self-taught, run a one-man-shop and even though I've been doing this for over 10 years, I don't have that shiny piece of paper that says "this guy knows his stuff" and as a result (for me anyway) that tends to kill the confidence level of saying "Yes, I'm worth $100+ an hour.". But it's a hurdle you've just got to clear because, if you can't be confident that you can charge that rate, you probably are going to be better off to: "STOP playing around in this industry and go get a job".
Overall, it is and will continue to be a big mental/psychological shift to get there ("there" being an actual business model that isn't just glorified enslavement) and it's both exciting and terrifying at the same time.
Thanks for the comment, Andy. Just FYI - I don't have a piece of paper either. My college degrees are in English and Political Science.ReplyDelete
What I *DO* have is many years experience. Over the years, I have passed several Microsoft exams. Most of those are product-specific, so the knowledge becomes less useful over time. But I'm a huge believer that any certification you get can be leveraged in marketing.
Before I had any certs, I was 100% self-taught. And I just decided to start at $100/hr.
I hereby declare you to be worth $100/hr. There. That was easy!
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