Being in IT and having friends in the industry go hand in hand it seems. So naturally, my buddies and I tend to get on the topic of IT-related discussions all too often. One particular topic that really gets me thinking starts off with a mixture of any of the below statements:
"I just can’t bring myself to charge someone."
"I don’t know how much I’m actually worth."
"I don’t know how to charge for my time."
And it’s not just people I know that admit to the above. The Technibble forums have numerous related posts on the same topic:
How much should I charge?
HOW DO I COMPETE AGAINST THIS? $25 per hour max 2 hour charge…
What would you charge this customer after all this work!
How much would you charge for this?
How much do I charge?
To be fair here, I am directing this article at those who are either self-employed in the tech business or who have sway in what prices they charge on behalf of a tech company. The topic itself is very resonant for me personally because I went through a similar personal re-evaluation a few years back, and want to help out fellow techs in the industry fix their own "self-worth" disconnect.
Before I started my tech company FireLogic, I worked for a local competitor in town. This is where I first noticed my self-worth devaluation. I had no control over what prices I was charging, and my take-home hourly pay was meager compared to what I was bringing in per-hour for client service I rendered. This was unsettling indeed, and I knew I had to make a change in my life. I knew very well I could easily be making more money for three reasons.
1. I was always a believer in furthering my education, and have had an informal personal goal to gain at least one new tech certification per year. This, however, was not valued by the employer and in turn was discouraging to both myself and many colleagues who I worked with that wanted to expand their knowledge base.
2. I was constantly receiving offers from tech recruiters offering interviews for positions with much better pay but I never bit on them.
3. I had colleagues at other businesses who were making better pay for the same line of work and similar qualifications/experience.
To make a long story short, I finally made the move to change my life. I got a better paying job at a local high school district in the same line of work, and have been quite happy for years now. But a similar conundrum came about when I started my consulting company as a part time venture. How much should I be charging customers? How much is my time worth? Will customers pay my asking price? All legit questions, and all need to be evaluated using the same simple recipe: what exactly did I consider being my self worth?
Time is money. Whether or not we like this, it’s a fact of life and the basis for how most service-based businesses gauge their pricing. I presume the majority of the readers on Technibble are in a position to set their own prices like I do, which is great leverage to have. This means you can not only evaluate what you are worth as a knowledge worker, but also what your customers should be paying for your time.
One thing I want to make clear to everyone is that there is no clear-cut recipe as to what you should be charging customers. Self worth and your public pricing of services are two different things – however, the latter should take the former into great consideration. Otherwise, you will find yourself doing something you love but making less (sometimes far less) than what you actually should be making. Judging off discussions with friends and on the Technibble forums, this is all too often the case.
Regardless of the fact that you own your business and don’t fit a cookie-cutter image of the average IT staffer, you can’t ignore the fact that colleagues who work at corporate America are making decent money working tech. Salary medians move in natural cycles and tend to be fairly well representative of what our industry is worth as a collective. A great resource to see how salaries are doing in the big business sector is Information Week. This isn’t the only publication that does a yearly survey of thousands of IT workers, but it’s my favorite representation of our industry because it isn’t focused on one sector alone. Since it’s 2011, their new salary survey results have recently been released and the summary is available here.
Here are the main points to take away:
- The median salary for surveyed IT managers is at $115,000/yr.
- The media salary for surveyed IT staffers is at $87,000/yr.
- The median salary for surveyed IT help desk workers is at $55,000/yr.
Where do you fall in this spectrum? That’s up to personal interpretation.
Let’s be clear that these results are not 100% representative of our specific niche of the industry, computer repair and consulting, since the survey takes into account high-level specialized workers such as Cisco admins and Oracle experts, which sway the results. But seeing that the above numbers are medians, some of the higher end ‘sway’ should be watered down. In the end, I’m only presenting these numbers as a base for discussion and not as a scientific comparison.
In general, some of the most common ingredients for a larger base compensation in our industry is a mixture of experience (most important), college education and technical education (read: certifications). As small business owners, compensation levels are generally the product of a fine balance of what’s left over after expenses and what your pricing structure entails. It seems that fellow business owners have a much easier time targeting and lowering expenses but can’t seem to figure out what they should be charging clients.
You’d think that this would be a much easier task, seeing that humans naturally have an inclination to want more over time. It’s the basis for why the average worker works hard to move up the corporate ladder, buy the bigger home, and itch for that yearly pay raise from his/her employer. But if the topic changes to how much you should be charging clients for your time, it’s another story. There’s clearly an elephant in the room and it goes like this: you are likely worth as much, or more, than you are currently charging and you shouldn’t feel ashamed about your hourly rate.
Face it, there will always be potential customers that will gripe with how much you charge. These same people likely bicker about rates when they see a lawyer for legal assistance, visit the doctor, or get their car serviced at the mechanic. All of these service workers have a self worth and many charge even more per-hour than what professionals in our industry do. Yet they are all still gainfully employed with solid client bases who keep returning to them for work, and also pass along referrals like wildfire. And I’d hope you are in a similar position with your business. My company FireLogic has been growing steadily since I incorporated and you would have never guessed that I had a large rate hike in late 2010. In fact, business has been better than ever since I raised my rates and it doesn’t look to be slowing down any time soon.
What made me increase my rates? I asked myself what many technicians fail to address, which is that nagging question of self-worth. I knew I was charging less than my competition by a great deal, yet I had similar if not better experience. I also hold multiple technical certifications under my belt, something not many local competitors can speak to. I set a floating range of what I WANTED to be charging and then ran a competitive analysis of my competition to see if this was feasible. In the end, I was able to raise my onsite service rate to nearly double what it was before and also developed a new travel rate for myself that covered gas and related vehicle expenses. I have no regrets about the changes I made and have lost zero customers since then, contrary to popular belief about rate changes.
I’m not here to tell you that you are not charging enough or charging too much – that’s all up to judgement based off of what you see your self worth at. However, here are a few simple guidelines I will share that I believe most business owners can apply to their line of work to see what they can and should be charging clients.
1. Ask yourself: what do YOU think you should be making per year?
Take an honest look at yourself and where you stand on the IT Salary Survey I referenced above. This applies to everyone who happens to work in the IT industry. Specialists, consultants, repair techs, trainers, etc. With a few moments to think, you can probably figure out where you should fall on the compensation scale based upon your skills, experience, and education. If you have a hard time setting a ballpark figure, take a look at a large aggregated job search website like Career Builder here in the USA and see what jobs are available for your line of work. Look outside the box if necessary and cross reference jobs with the various skills/education you have. You can likely piece together your own figure pretty easily.
2. Using the above number, find out what your weekly income should be
Having a yearly income figure is all fine and dandy, but to make this something more manageable on a smaller scale, we need a workable figure. A monthly income figure is nice but still a bit broad; likewise, a daily figure may not be entirely accurate as the number of days worked varies per week. A good middle ground is using weekly income as a guide for what you need to be taking in to meet your self-worth goals.
For example, a hypothetical computer repair business owner who works in the Chicago, IL area estimates that his self worth is roughly at $70,000/yr based off his qualifications, experience, education, and a reflection of where he may sit in relation to the 2011 Salary Survey. To get his weekly income figure, we need to do the following:
Yearly income goal: $70,000
Weekly income goal: $70,000 / 52 (weeks in a year) = $1346 per week
3. What are your average weekly expenses of operation?
As a small business owner myself, I know this number fluctuates a good deal and it’s hard to pinpoint, but do your best to get as good of a number as you can. This will help determine how much more you need to bring in weekly in order to meet expenses and also hit your personal income goals. If the example I used above is our reference, and he wanted to make $1346 per week if expenses are at $250 per week, then his gross income has to be at $1596 a week to account for those expenses.
4. How many billable hours can you manage per week and at what hourly rate?
Continuing off the simple example above, the magic ideal number we have to meet is $1596 per week. To translate this and take into account billable time, this is where the fine tuning of pricing your services comes in. You can either work more hours for less money, or less hours for more money. There is no one-answer-fits-all solution for this equation. You need to fill in the blanks as you see fit for your situation.
If this hypothetical technician wants to meet the $1596 per week goal, then the hourly rate can be easily found by testing out the same equation using different different numbers of billable hours. For example:
$1596 / 20 billable hours = $80 per hour (roughly)
$1596 / 15 billable hours = $106 per hour (roughly)
Again, your number of hours and the subsequent hourly rate will of course be different. Perhaps you see yourself as a workaholic that can demand $95 per hour and easily pound out 18 hours per week of billable time (for a gross income of $1710 per week). All of us have our own circumstances for what we can charge and how much we can work. And by all means, don’t use this equation as THE SOLE deciding factor for what you may end up charging. I recommend you use this merely as a loose guideline for how you can meet a yearly income goal using a few easily calculated figures.
5. Is your hourly rate competitive AND marketable in your service area?
While I wholly believe that garnering your market, self-worth rate for the service you provide is ideal, it’s not always doable depending on where you service customers. On the average, rural areas generally have a depressed rate for similar services provided in urban or suburban areas. There may be exceptions to the rule, and you may indeed work in a rural area with a higher service rate than competitors in the nearest urban area. Competitive analysis is always something you should keep in mind when setting a final decision on how much you will charge.
When I changed my rates late last year for tech consulting company FireLogic, I checked pricing against roughly 10 competitors in my area. It reaffirmed my judgement about what I should be charging, and allowed me to decide that I wanted to undercut my competition just slightly to have a competitive advantage. While I may not keep my current rates forever, they allow me to reach out to new clients who otherwise may have chosen a more established outlet. My current customers understood why I had to raise my rates and have been welcoming of the change even though it is a tougher hit on their pocket book.
6. If you are changing your rates, communicating the WHY and HOW to your clients is key
One of the greatest challenges for a small tech business regarding rate change is sometimes a simple concept known as a perception gap. Unless you make the case as to WHY you made the change and HOW it affects them, their perception of the change may be incorrect and will linger that way until addressed. Sometimes, this perception problem is never addressed, and clients either feel disenfranchised or start losing trust in your company. It’s a fine balance of saying just enough to make your case while not having to broadcast the information like a wholesale supermarket that blasts customers with weekly price bulletins.
I decided to handle my perception gap problem via a simple yet effective rate change letter that went out over postal mail. I typed out my explanation on company letterhead, hand wrote all of the envelopes used, and personally signed each and every letter I sent out. It came off to customers as a genuine change that I had to make and it showed both in my presentation and delivery. I also used it as a marketing opportunity and included a few cards, my new fridge magnet, and offered to honor my old rate until the end of the year as a gesture of gratitude for my established client base.
It went over very well, and while I did not hear back from every customer about it, the ones that did schedule appointments with me in the coming months agreed that the change was necessary to keep service quality high while addressing my increased expenses. While some of the explanation was fluff for the core reason of the rate change, which was meeting my self worth valuation, you need to round out your reasoning with hard key points as to what a rate increase is doing for the customer. Think of it from the client perspective: a rate increase isn’t that bad if it is both justified and necessary.
I know some people may say that I did not address those shops that charge flat fees for their work. You can manipulate your numbers in order to find out what your flat fees should be, but it’s obviously a good deal more work. I have never liked the idea of charging flat fees for work that I offer for a variety of reasons, many of which I will address in a future article. But for the sake of this posting, you may need to find out your weekly work load based upon the number of jobs you complete and the associated rate(s) for those jobs. Depending on what kind of price chart you follow, this may be harder or easier.
In the end, I hope the moral of this article stands tall, which is you need to be honest about what you believe you are worth as a worker and charge your customers appropriately. If you’ve followed some of the simple guidelines above, you can easily re-evaluate your self worth and set pricing that reflects what you should be making. I’ve never advocated being greedy – but taking home what you deserve is just as much your honest economic right as the person next door.
Have questions for me personally about the article above? Feel free to email me at info(at)firelogic.net and I’ll try to respond to any inquiries in a timely manner. My technology consulting & service company FireLogic is based out of Park Ridge, IL and my personal blog is online at Wlodarz.net.