Determining your hourly rate based on the value you think you have

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DETERMINING YOUR HOURLY RATE BASED ON THE VALUE YOU THINK YOU HAVE

This pricing approach is not part of the traditional ways of determining an hourly rate, but in my career I have seen this approach so many times that I feel I need to talk about it here.

I have met several people in the service industry who determined their hourly rate based on a perception of their value. For example people who had friends or colleagues, doing something similar and who earned a particular hourly rate, were influenced in their thinking when the time came to establish their price. Their level of education also weighed in the analysis. Same thing regarding past experiences (I met several trainers with university experience who wanted to have the same hourly rate in the private sector).

It is a way of evaluating your price; which, even if it brings some useful elements, remains highly emotive and relies only in part on an analysis of other aspects to establish the price. What will weigh the most in the balance will be a system of social value based on the hourly rate: I am a professional with 10 years of experience, I must charge $ 150 an hour for example. Or my friend who works in a major company earns $ 150,000 / year, to do the same job that I am doing, I should earn at least the same amount.

There are elements that are valid in this comparison, but the whole situation must be analyzed, not just the elements that suit us. For example, a professional who is in a reputable office with several associates and support staff, charges $ 150 an hour for the same number of years of experience you have. You are self-employed, work from home with the help of an assistant, and you do not yet have the high-profile customers. Then your hourly rate could be lowered. Unless you would rather have fewer customers. The same applies to university lecturers. Of course the hourly rate is high, but it usually does not cover hours spent doing homework and grading exams as well as allowing time for questions. If a private company offers you a mandate that does not involve grading and additional periods, some flexibility may be required.

Another important factor is the impact that a change in the hourly rate can have on your business volume. You're starting out, being stubborn and charging $ 35 an hour which could give you 15 hours of work per week ($ 525) is less profitable than charging $ 25 an hour and being able to get 30 hours of work per week ($ 750). Over a week, it is a $ 225 difference, but over a year we are looking at a difference of more than $ 10,000.

If your choice is to work less, then asking for a high hourly rate is quite valid. But if your goal is to start your business, having an hourly rate that brings in business is more important for the short and medium term. In the long term you can always adjust your pricing when your waiting list is full.

If you have any questions or comments on this topic please do not hesitate to contact me.

Stéphane Elmaleh-Riel, B.Ed., MBA
Marketing consultant

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