This is part 3 of the Budget Basics 4-part series. Part 1 covers basic terminology, and you can read it here. Part 2 helps you develop your personal budget and its importance in building your business budget. You can read part 2 here. And now that you know basic budget terminology, and what your business profit must be to survive as a full-time entrepreneur, it’s time to set your service rates.

This is where the fun begins. Let’s dream a bit about the ways to make your business goals a reality. Rate setting, especially for service-based businesses, is the most important step in creating your business budget, and it is the fun part. Okay, maybe it isn’t fun for a lot of people, but I really love a well-thought out, easy to track and manipulate budget that helps me realize my goals.

Infographic with 3 options to set your service rates.

How Do I Figure Out What to Charge for my Services?

First things first. What are you going to charge for your service? I think this is where most new business owners get jittery. Now that you know what you need to make, and your business and personal finances are separate, you need to determine what services you offer, and your value based not only on your experience and the problem you solve but also your needs. It is so easy to pursue every lead and reduce your service rates when you are new in business. A few thoughts you may allow to sneak in:

  • To get clients, I need testimonials, so I will barter my services for them.
  • I am so new; I need to charge less than my competitors, so I can build my business.
  • I don’t have enough experience to charge a premium.
  • I charged too little in the past and now I am stuck with my rates.

There are a million ways that these thoughts can sneak in, take hold of your GOALS, and harm your potential. Take a moment and remind yourself:

  • You are worthy.
  • You are brave.
  • You are smart.
  • You are enough.
  • You deserve to charge enough to sustain.
  • There are more customers than providers – there is ENOUGH business to be successful.

Look at Your Competition

Okay, so now that you know what you need to live, and you know that your service is worthy of meeting your needs, let’s look at the competition to make sure that you are in line with competitor rates. While you need to determine your worth, you should also make sure that your offer is in line with your competition.

To do this, I did a Google, Facebook, and LinkedIn search for Business Consultant, Operations Consultant, Online Business Manager, and Fractional Director of Operations. You want to search for the keywords that are specific to your niche market – your service and the people you provide that service to.

If you know me, I love a good excel sheet, so of course I created a spreadsheet that categorized the business, contact information, services, and price if available. I also took the time to view their website, reviewed their testimonials and Google Reviews, and made a note of their various website pages.

Based on my research, my offerings are competitive, and solve business problems that are not solved by my competitors.

Set Your Income Goal

We touched on this in the article, How to Get Paid First in Your Small Business. I also want you to consider the following questions:

  1. What is your income (business profit) goal? Go back to the personal budget sheet.
  2. What are your business expenses? You can use the personal budget sheet to help outline your fixed and variable expenses. Think about software subscriptions like Canva, QuickBooks, Asana, Bluehost, MailChimp, Opt-In Monster, etc. Do you have a leased space? Do you pay for benefits, utilities, phone, internet, postage, marketing, vendors, and/or contractors? Think of every expense you can, even if it is on the wish list. This will come in handy when you set your business financial goals.
  3. Do you have any liabilities tied to the business? Think about tax payments, credit cards, line of credit, car payments.
  4. Do you plan to keep money in your business account, a rainy-day fund? I highly suggest that you do this. My goal is to keep one month of business expenses in my account, just in case.

Add all of your business expenses and your rainy-day fund goal together? What is that number? As an example, let’s assume that your expenses are $2,500/month, and your income goal is $7,500/month. Your total revenue goal is $10,000/month. Your profit, revenue less expenses, is your target income of $7,500/month.

It’s Time – Set Your Service Rates

There are a few models service providers use:

  1. Hourly rate – charge a fixed amount per hour. I highly encourage you to think about the time you spend directly and indirectly with your clients. If you have an hour call with each client per week, how much time will you also spend preparing for the call and doing follow-up or post meeting activities? Calculate this time into your hourly rate.
  2. Packages – a specific service that solves a specific problem for your client, with a set number of hours and results achieved by the end of the pre-defined period. You could also consider this a project-based payment model. You complete a specific project, with agreed upon benchmarks and results, for a set rate.
  3. Retainer – similar to a lawyer’s retainer fee. A client will pay you a set amount up front. You typically charge per interaction with the client until the retainer hits a predetermined minimum threshold. If your services are still required by the client, you charge the retainer fee again.

I strongly believe in diversifying your revenue streams, giving yourself multiple options for potential clients to choose from, and knowing what your minimum hourly rate is. I also suggest that you consider passive income options like hosting webinars, online courses, and/or products specific to your niche market. Your return on investment (ROI) is high because the expense is low, and it does not require you to be present after someone makes the purchase. The more ways you can bring in money tied directly to your service, the more sustainability and growth opportunities your business has.

Let’s do some math!

Hourly Rate

Your profit goal is $7,500/month and you want to build in an additional $2,500/month for expenses. Your total revenue goal is $10,000/month. If you only work with hourly clients, you need to bill about 67 hours/month – $10,000/month /$150/hour = 66.66 hours.

If you work with clients weekly and average 4 weeks/month, you need to bill 16 clients each month – 67 hours/4 weeks = 16 clients. Assume each client is approximately 2 hours per week, one hour for direct client work and 1 hour for indirect work. You will need to dedicate 32 hours/week to clients, which leaves about 8 hours/ week to manage back-office tasks, such as billing, marketing, sales, and lead generation.

Package Rate

Let’s consider an alternative. Maybe you don’t really want to manage the goals and action plans for 16 different clients (I sure don’t!). Instead, let’s include a package. Perhaps you are a social media manager, and you can guarantee a 25% sales conversion and a 50% following increase in 3 months. You build a package based on the results and charge clients $1,500/month. If you sold 3 packages, you need to work with 9 hourly clients per month to meet your revenue goal. Maybe that seems more manageable.

3 packages * $1500/month = $4,500/month

9 clients * $150/hour = $1,350/hour/week

$1,350/hour * 4 weeks/month = $5,400/month

$4,500 + $5,400 = $9,900/month

Passive Income

Let’s say that you create an online course to help business owners achieve similar sales conversions and following increases on their own. You charge $150 for a one hour course and make it your goal to sell 25 seats to the course every month. That is $3,750 in revenue. Consider the time and expense to launch the course, so let’s assume $750 to build and advertise it. Your profit in the first month is $3,000, but your income potential increases the longer your product exists, and the longer your market it.

So, let’s look at revenue possibilities with hourly clients, package clients, and passive income.

You want to cap your hourly clients at 5 per month. Assuming $150/hour and 4 weeks/month, your revenue is $3,000.

You are comfortable managing 3 package clients at $1,500/month. Your monthly revenue is now $4,500.

You sell 25 seats to your online course, increasing your revenue (less the expense specific to the online course launch) to $10,500! Profit goal met.


More to Consider

When you work for yourself, there is NO guarantee that you will meet or exceed your profit goal. It is 100% dependent on your ability to set goals and proactively revise them when things are not happening the way you planned. There is a saying, “outputs are only as good as inputs”. What you put into your business directly affects what you get out of it. And that is precisely why budgeting is so important. The more you know about what you spend, and the ways you can realize your profit goals, the more proactive you can be when things are not working the way you intended.

What do you think? Are you finally ready to put your business budget together? Do you feel comfortable with your service rates? Let me know in the comments, and if you found this article helpful, be sure to share it with your friends and family.

Stay tuned for the final Budget Basics article, which will hit your inbox next week.

Want to stay up to date on Christy Russell Consulting News? Give us a follow on social media, and if you loved this article, share it with your friends 🙂