Pricing up work that’s not the “norm”

Someone has approached you and asked if you can do something that’s not quite your usual day-to-day business, but it sounds interesting, fun, within your capabilities and you want to do it.  Now the panic sets in – how the heck do you price it?

What you need to think is what could I be earning if I wasn’t doing this .. and then make sure you charge enough to cover this lost income (and more if you can!) .. opportunity cost in accounting terms.

But how do you work this out?

Step one – what is the lost potential income?

Firstly, you need to work out what the lost potential income is from doing this work – what could you have been doing to earn income on that day if you weren’t now doing this.  If you would normally be generating £1m000 of income but doing this other thing means you can’t do it, then the lost potential income is £1,000 per day.

If you would normally make sales of £2,500 and you margin is 2.5 then the lost potential income is the profit you could have made (£2,500 / 2.5 = £1,000 per day).  It isn’t the sales as it’s the profit you have lost.

And remember, just because you might not have been doing that on the day in question, that doesn’t matter – it is the POTENTIAL that does matter.

Step two – how much time is involved?

You need to consider how much time is involved .. not just the day but also pre and post work i.e. meetings, prep work, debrief etc.  Let’s say it’s another day on top of the one above .. so another £1,000 of lost potential income.

Step three – total cost

So now we have that it’s 2 days of your time with a cost of £1,000 per day.  This means that the minimum you should be charging is £2,000. 

Step four – research

What are others charging? Yes, eyes on your own mat and all that but if it’s something you don’t normally do then you need to sense check what you are coming out with.  If your costs are £2,000 and everyone else is charging £2,500 then charge £2,500 .. don’t be shy! But if everyone else is charging £1,000 then it’s worth reconsidering .. will they pay a premium for you to do this or do you want to drop your price and reduce your potential earnings to do this?

Step five – things change

Remember, as your business grows, changes and develops then these costs will too.  I am not suggesting you review every time a request comes in, but an annual exercise is definitely a good idea.  

Pricing & CashRachael Savage