One of the hardest aspects of running a business is working out what to charge for your work and your team.
It’s so often an aspect that is filled with doubt, confusion and fear;
● Doubt about whether you’re doing it right
● Confusion about the best way to do it and
● Fear about getting it wrong!
Yet it’s so critical to a business’s success (no wonder there’s doubt, confusion and fear!).
A Harvard Business Study showed that a 1% increase in price could result in an 11% increase in operating profit.
Unfortunately the reverse is also true - get your price wrong and your margins and business growth will shrink.
While there are multiple factors in calculating the right price to charge your client (check out my video on the Secrets To Project Profitability), one of the key components is your business Rate Card.
If you're not familiar with a Rate Card, they are simply a document outlining the chargeable rate per hour (and/or per day) for the various different roles involved in delivering your product or services.
Sometimes this Rate Card is shared directly with the client. Other times it is primarily an internal document used to price up various services and packages.
I say ‘simply’, however creating a robust Rate Card can be a fairly complex task - especially the first time around. And that is because your Business Rate Card needs to incorporate all your staffing and operating costs as well as your desired margin and workload in order to be effective, i.e. make you money.
Get your Rate Card right and you can have confidence that you can scale your business profitably.
Get it wrong and it can damage your profitability, prevent you from hiring or paying your staff what they deserve and limit your ability to profitably scale.
So, no pressure!
But the effort to get it right is worth it…
Once you have a robust Rate Card in place you can be confident:
As you can see, a robust business Rate Card is an incredibly powerful tool!
However, having a Rate Card doesn’t mean you can’t be flexible.
A Rate Card is simply a tool that lets you make informed business decisions. How you use it is up to you. The beauty of having a Rate Card is it’s the first step towards understanding where you make your money and gaining control over your profitability.
An effective Rate Card system will show you where your financial tolerances are.
It will enable you to make informed decisions about how much discount you can afford to provide a client while having the confidence you are still working within an acceptable level of profit.
When you see the positive effects, it’s hard not to get excited!
It probably won't come as a shock that the reason most businesses fail is because of poor financial management. In fact in a recent study of 101 failed startups, 4 out of the top 5 reasons they failed was due to poor pricing.
4 out of the top 5!
So having a Rate Card is part of sound financial management.
It’s your “go-to” when you need to cost a job or a project. It helps you get control over your costs and grow your bottom line.
Whether you are a solopreneur wanting to grow.
Or an established small business with 20+ staff.
Where Do You Start?
In my 20+ years of business transformation I have seen many different ways of calculating an hourly rate.
Some are definitely more effective than others!
However there is one consideration for anyone want to create or update their business Rate Card that can have a massive impact on your ability to scale effectively.
And that is:
Model your Rate Card on business you WANT to have,
not just what you have today.
Right now you may be one person doing everything.
Or you may have a small team of people doing everything.
Or you may have already built a team of specialists.
It’s very common to build your Rate Card on what you have today - focusing primarily on the roles you currently have in your business.
The challenge with this approach is that it limits your ability to bring IN that more expensive talent in the future.
Ultimately as you develop your business, more diverse and specialised roles will come into the mix, and you need to ensure you can hire and utilise these new roles profitably.
To do this, you want to make sure these potential new roles are accounted for on your Rate Card because without that, bringing new skills into the business can be a very costly exercise.
Now, that doesn't mean create a Rate Card with every possible role imaginable in it! (I've seen it happen, and it ain't pretty! Adding a whole lot of unnecessary work and confusion.)
Instead, refer to your Business Vision for the next 12 months.
Picture your ideal team of talented people and skillsets that would make that vision a success - think of it like your wish list of roles.
Now build your Rate Card around that vision.
Because, the team you can afford to build, is the team you're already charging for.
It’s also vital to bear in mind that your Rate Card is a living document and will need reviewing frequently.
Because your costs are always fluctuating, your vision is always evolving, and business is always growing.
Today you might not need that new software or subscription but what about in six months time? Perhaps your marketing strategy has changed, or maybe you’re on the look out for new premises.
It’s not uncommon for businesses to be working with margins as low as 20% so if you’ve got a 10% inaccuracy in your Rate Card your profit has been chopped in half already!
Whatever the factors that make up the costs of your business, frequent reviews and Rate Card updates are key to ensuring you don't end up out of pocket.
Like anything, building and maintaining a Rate Card takes time, effort and knowledge.
But once you have a system set up, it’s an incredibly powerful tool that is foundational to creating a sustainable, profitable agency.
Remember, it’s your business and your people. And it's also your job to make sure you're charging correctly for it.
So you can grow and scale with confidence!
Need help creating a robust Rate Card for your business so you can grow your team and scale your business with confidence?
Book in a free Pricing Discovery Session and let's talk.
Find a time that works for you here: Grab Your Free Pricing Discovery Session Today
And you are WORTH it!