Pricing up something outside of your normal day to day work
I have had a few queries recently about how to price up time for doing a piece of work that wasn't part of the day to day activities of the business but was something interesting and they wanted to do .. this left them feeling confused as to where to start. This got me thinking .. they can't be the only person faced with this dilemma, so what do you do?
What we are essentially looking out is calculating what you could have been earning if you weren't doing this and then making sure you charge enough to cover this (or opportunity cost in accountancy terms).
How do you do this??
- You need to work out what the lost POTENTIAL income is for doing this. Basically what could you have been doing to generate income that day. So if you would normally have income of £1,000 in a day but doing this other "thing" means that you can't do that then the lost potential income is £1,000 per day. If you would normally make sales of £500 and your margin is 2.5 then the lost potential income is the profit that you could have made (£500 / 2.5 = £200 per day). Just because you might not have been doing that on the day in question doesn't matter .. it is the POTENTIAL that does matter.
- How much time is involved .. in TOTAL .. i.e. with the pre and post work, so factor in meetings, prep work, getting straight afterwards. Let's say 2 days.
- Calculate the cost. For the above examples it is either 2 days at £1,000 per day = £2,000 or it's 2 days at £200 per day = £400. This is then the MINIMUM you should charge, and this will vary from business to business.
- Research - what are others charging? If your cost comes out at £400 and everyone else charges £600 then charge £600!! Don't be shy ..
- Remember that as your business grows, changes and develops you will need to revisit these costs. Now, you don't want to do this every time but you should review on an annual basis to make sure you are happy with what you are charging.
Hope this is of help and if you have any questions then please get in touch.