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PRO

Try this simple hourly rate test

Establishing what is the right rate to charge yourself out at is the tricky bit and nobody will get it 100% correct -but how do you know where to start?

Below is an example of how a one man band should approach setting a charge out rate.

My first consideration would be to take the highest outgoing such as the mortgage or rent on your house. Let us say that the expenditure is exactly £12,000 per year or £1,000 per month? Easy peasy, just divide the amount you pay out by the number that you are able to work for the year. If you are setting a target of 2000 hours (50 weeks x 40 hours) then divide £12,000 by 2000 = £6.00 per hour just to pay your mortgage.

Now add in the fuel cost of an arbitrary amount of £2,000 for the year - £2,000/2000hrs = £1.00 per hour to cover fuel. So you can see, it does not take long for your hourly rate to increase. And bear in mind, this is just to pay YOUR essential bills and does not provide for your luxuries or food.

Lets try another one.

If you spend £100 per week on shopping. This equates to £5,200 per year on food. Divide that by 2000 hours and you have another £2.60 per hour to add to what you need to charge. So out of three important costs we have to find £19,200 which equates to £9.60 per hour. (bear in mind, we have not tackled insurance, advertising or any other recurring cost that you might encounter. Can you see where I am going with this? Every cost that you incur needs to be turned around and worked out over your working year to be able to recoup it.

Now lets make the mathematics a little interesting and say that you have two solid weeks of wet or frozen weather throughout the year and we have to reduce the amount of hours that you are able to charge out by 80? So instead of spreading £19,200 over 2000 hours we have just 1920 hours in which to recoup the £19,200. As you can see, the numbers work easily and we have a round £10 per hour now. We need to raise the price of every hour of labour you sell by £0.40 throughout the remaining 1920 hours just to break even on those three basic costs.

Try this exercise for yourself with your three highest overhead costs and take a view on what your target hours are or what you are aiming at.

Many of you will be surprised by your findings and realise that you will only close to break even with no margin to allow for anything not going to plan. Use the mileage formula and the hourly rate spreadsheet to get a picture.

There are many methods that can be used to determine costs and charge out rates and this information is intended as a guide only and anyone seeking to set their rates may need to take qualified advice from an accountant.

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Replies

  • PRO
    Hi Daniel

    I understand what you are saying but you MUST work out what you need to charge and stick to it.

    One of the most critical things is marketing yourself so that you can safely charge what your experience and skills dictate what you should.

    It seems to me that you need to work at estimating the time involved in carrying out the project.

    Daniel Oxenham said:
    I get what you are saying about a min hourly rate, but as I only have a certain amount of clients I can’t up my price as much as I would like to. Recently I did some work - and I was so desperate for money that I agreed to do it for £400, this was meant to be £100 a day; that’s £50 short. It turned out that the job took me 9 days. I was gutted I had to work for so little, but I had no other work on so I got on with it. That £400 was money I would not have had. If somebody said to me; right now “I need this building, but I only have a budget of £400 for labour”, I would take it, I’m not in a position to turn down work at the moment.I did the accounts for the last 3 months today and it did not look good, After all of my ins and outs; AD Landscapes made £635 that’s without a wage.

    Just to add..if you ever need any help then don't hesitate to get in touch.

    On the plus side, I have two big landscaping jobs coming up, I hope. That will change my figures.
  • Sad but true.
    Hope things pick up for you.
  • I understand how you feel - we have had to take a couple of jobs on at very poor rates to keep some money coming in. However we did find re-focusing on our marketing helped, and we got through and are not looking back. Perhaps now would be a time to re-assess how you get the work in?

    Daniel Oxenham said:
    I did have a min, but now im just going to take the work untill i can afford to put it back in place.

    the job should have taken 4 days, the client was hard work, normally i would have walked away but like i say, i cant turn anything down.

    earning little money is better than no money.
  • Never charge by the hour full stop !.
  • PRO
    You keep saying that Peter, but you never explain how that works for general maintance.
    Lets say the customer is always there, you have to tell them when your coming, day & time and how long you will be. If as you say charge for the job but are always there 2 hours say, won't the customer conclude, half the amount is the hourly rate.

    I fundamently fail to understand what is wrong with charging by the hour.
    We often work within a monthly budget and always have a minimum charge but if the work or the cutomer requires, we can work longer, thereby earning more money.

    The more money we earn per visit to a garden, reduces the overhead cost of getting there per working hour. If we charged a fixed price there would be no chance of increasing our charge?

    Peter Davis said:
    Never charge by the hour full stop !.
  • PRO

    It's a mindset change to stop charging by the hour. If you continue to charge per hour you limit your ability to earn money and grow your business. You are constrained by the number of hours you can work per week * number of weeks you work per year * your rate ie £18p/hr * 40hrs per week * 52 weeks (which is not practical) = £37400 pa

    It is unlikely you could swap to charging by task for an existing customer, so maybe migrate to a fixed price over a period of time? For new customer, explain your strategy.

    We vary how much time we spend during a customer visit, we 'throw in' a few freebies (maybe spraying a path, treating some shrubs, adding some fertiliser etc) at minimal costs to us but valuable to client, that way it is not obvious and they can't back calculate. And if clever, we've already allowed for in our quoted price.

    Look at the task or work needed (makes you focused and accurate), calculate your quoted price internally add your profit & contingency. Do not state how long you will be there (mention the 'features', mention 'benefits'). Say for £x I'll do y. Only you know what your work capacity is, so bare this in mind.

    So if you quote £72 to do a job (ie a half a day (4hrs) at 'your rates', you should have estimated it at, say 3hrs). You work hard with a focus on doing the job in 3 hrs, but in effect you've charged an internal half day rate)

    If you finish in 3hrs you're up, if you finish in less than 3 hrs you're really up, if you finish in 4 or more hours your estimating stinks :) !  You then use the hours you've 'made' to do another job and so on. You've then broken free of per hour charging.

    We do not discuss in detail how long it will take, we simply say it will cost this much to achieve this amount and you, the client, can be assured our price is fixed.

    We are in a service industry, but add value by our knowledge, the way we do things or the extra services one can offer and you can then supply a 'packaged product' which can be charged for...

  • I can see both sides to this but what would you do if a customer wanted a days gardening and was willing to pay £150 for that days work.
    Surely the customer is entitled to ask how long you are going to be there?
    I always quote per job BUT I also know the day rate I charge (£150 for 8hrs). If a customer is willing to pay that then I'm happy. I make extra money by doing smaller one off jobs.
    Take today a full day (8hrs) for one customer (£150) then 3 small grass cuts on the way home at £20 each.
  • PRO

    Daniel,

    You have to absolutely charged (or have costed in) for ALL aspects of your work? If you don't charge for it your customer will never appreciate it - What if you suddenly don't have access to 'your field' - you've then got to convince your client to pay more after he's used to paying less.

    For task based pricing you need to be accurate in your estimating. Learn from experience, compare with Spons, talk and discuss with others.

    We tend not  do anything less than half days  and have really never come across someone insisting on just a 'days' work. I found that clients who only want to deal in hourly rates are 'price tarts' and have little loyalty.

    Look beyond them and find clients that value you, your knowledge and the 'benefits' you can bring to their garden...Otherwise you will be constantly fighting with the bottom end of the market


    Daniel Oxenham said:

    I like this, i know this, but i havent had the chance, as yet to use it. Think i need to man up with my customers, i do find that with my garden maintenance customers, i charge £35 normally 2hrs work. I much prefer £72 for 3hrs:), I do get the point. i have said to customers before, if i wanted to earn £15 per hour i would have to charge you £25 an hour.

    Its strange landscaping work, i dont think for a sec of charging by the hour, all work is done on price. but maintenance i allways slip into that way of thinking. I dont normally charge for taking away lawn clippings and weeds, i have a giant compost field. As i wright this, im thinking, im a muppet. Think a few pennys just dropped.
  • PRO

    Daniel,

    Appreciate the position you are in - it's hard I can remember, but have a plan to move on up. Look at what you've done to date, identify areas you can address (new skills, services, advertising, web etc) and make a plan, make it simple and measurable and act upon it.

  • Daniel Oxenham said:
    I fully understand what you are saying, but at the moment the only work i can get is the lower end, i would love to say, You need half a day a week and its this price. i could spend all day telling them all i have done and who i have worked for, what comp's i have won, nobody cares. they want someone in to do the work for very little, if not farmer john, who fancied a change will do it at £8 an hour, like i have said any money is better than no money.

    I think i got one thing wrong this year and thats advertising, maybe not knowing the area, im not sure what went wrong, but it well and truly went tits up. still mustn't grumble.


    Gary RK said:
    Daniel,

    You have to absolutely charge (or have costed in) for ALL aspects of your work. If you don't charge for it your customer will never appreciate it - What if you suddenly don't have access to 'your field' - you've then got to convince your client to pay more after he's used to paying less.

    For task based pricing you must be acurate in your estimating. Learn from experience, compare with Spons, talk and discuss with others (ie LJN).

    We don't do anything less than half days (at costed internal rates) and have really never come across someone insisting on just a 'days' work. I found that clients who only want to deal in hourly rates are 'price tarts' and have little loyalty.

    Look beyond them and find clients that value you, your knowledge and the 'benefits' you can bring to their garden...Otherwise you will be constantly fighting with the bottom end of the market


    Daniel Oxenham said:
    I like this, i know this, but i havent had the chance, as yet to use it. Think i need to man up with my customers, i do find that with my garden maintenance customers, i charge £35 normally 2hrs work. I much prefer £72 for 3hrs:), I do get the point. i have said to customers before, if i wanted to earn £15 per hour i would have to charge you £25 an hour.

    Its strange landscaping work, i dont think for a sec of charging by the hour, all work is done on price. but maintenance i allways slip into that way of thinking. I dont normally charge for taking away lawn clippings and weeds, i have a giant compost field. As i wright this, im thinking, im a muppet. Think a few pennys just dropped.
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