If you are self-employed or own your own small business, one of the most important parts of your business plan is determining your rates and/or product pricing. However, this isn’t necessarily as easy as simply figuring out an hourly wage for yourself: You also need to take into account all of the benefits you will be losing by quitting your full time job, such as health insurance, sick and vacation days, employer matching to your 401(k) account, pension plans, and so on.
As you can imagine, your hourly rate actually needs to be considerably higher than your wage as a full time employee, to make up for the benefits you are losing. To use a simple example, consider my situation when I transitioned from a full time writer to a freelance writer. At my full time job, my salary worked out to about $15 per hour, but as a freelance writer I had to make several dollars more than that starting out, to account for the benefits I was losing.
Another thing I had to keep in mind was the amount of time I had to spend marketing, instead of working. Most freelancers report that roughly half of their work hours are spent searching for new work or clients, which could entail everything from browsing listings for freelance writing jobs, to working on marketing materials such as a website or blog.
If you are starting a business, you will have even more to consider when setting your rates, such as the cost of keeping employees. For instance, if you are starting up a Florida advertising agency, you will need to figure into your rates the cost of your employees’ salaries, your Florida small group health insurance, and any other benefits you might offer, such as yearly bonuses or vacation time.
By figuring out exactly how much money you will need to make per month in order to cover all of this, you can minimizes your likelihood of failure due to not charging your customers enough.
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