Setting your rates as a new business owner has always been somewhat confusing for most creative entrepreneurs starting out. Let’s be honest, we all aspire to be paid like a famous rock star or artist where our creative genius is priceless. However, when starting out it’s best to establish a foundation and formula that you can compare to working for an employer, especially if your goal is to quit or replace your 9-5 job.
Based on U.S. national standards, 40 hours a week is considered full time.
Using the U.S. national standard for full time work (thank you Google) I have created a step-by-step formula to help you plan, price, and package your services based on your income goals for year 1, year 2, and so on.
Step 1: How much do you want to make this year?
Determine your salary goal for the first year and divide it by full or part time hours, depending on how much you plan (or want) to work. Don’t be shy. This is your time to reach for the gold, plan for the future, and take steps to lead you in the right direction.
Desired Yearly Salary/Yearly hours (2080 hrs/year is full time and 1040 is part time) = My hourly rate
When getting started the goal is to not price yourself too high and out of the market or too low and lose money. You need to build your reputation, then slowly increase your fees as your efficiency and expertise increases and as your brand becomes more known. Create a range from low to high so you can grow into your lofty goals over time.
For example; A package for day-of event planning may have taken you much longer for your first 5 – 10 clients, but after awhile you will have a rhythm, routine, and network to help you do things much faster and more efficiently saving you time.
If you set a $50,000 salary as your starting goal you can divide that by 2080 hours to determine your hourly rate. $24.03/hour (round up to $25.00)
If your yearly goal is:
$100,000: 100,000/2080 = $48.07/hour (round up to $50.00) – now you’re getting the hang of it...or
$200,000 = 200,000/2080 = $96.15/hour (round up to $100) – even better #Boss
(Fixed Cost per year and variable cost per event/client will also become a percentage of your packages which is outside of your personal hourly rate.)
Fixed costs includes administrative staff and operational cost that is same each month, no matter how many clients you have.
Variable cost include the amount of time you will actually spend per task per client and the raw materials, so it will change per client.
…or anything you do for your business?
Step 2: List all the pre and post tasks associated with your services:
Sample List: Day of Event Planning/Coordinator example (not including month-of prep commonly included)
- Call all vendors and confirm arrival times and roles and responsibilities and any misc issues. – 4 hours
- Visit venue and confirm locations, restrooms, arrival time, vacate time, and post event responsibilities. – 2 hours (including travel time)
- Create day of timeline – 2 hours
- Attend rehearsal – 2 hours
- Arrive 2 hours early – 2 hours
- Ceremony Management- 1 hour
- Guests management – 1 hour
- Reception Management – 4 hours
- Post clean up – 2 hours
20 hours falls between $500, $1000, or $2000 based on the hourly rate examples above of $25, $50, or $100 per hour.
Adding staff members – Day of with 2 staff members – 10 hours at 25/hr/pp = $500 ($250/day/person is a standard to charge in many service industries)
At 50K/year you may present a day-of proposal for 3 ppl for $1000 or 2 ppl at $750.00 (plus your fixed cost)
*Remember you will also be responsible for your employee’s taxes, state unemployment and state disability. You may actually be paying your employee’s $15/hour but charging your client $25/hr. so don’t forget to increase your staff rates as needed.
To create your other packages you will need to list all the roles and responsibilities you will offer to the client and then estimate the time each task/line item will take to get a total number of hours. Then you can decide which hourly rate you are using (that year) based on your experience and reputation. Tip: Take the time to create this research…it will be worth knowing how much time each tasks/service you provide takes so you can be confident when pricing proposals.
Over time you will increase your rates as your reputation/brand grows and cost of living increases. More importantly you will also become more efficient with delivering your services. This will gain you valuable time back and you can begin to reap the rewards of your hard work setting up your business and perfecting your services. You can also use this value of time to discount your packages when needed to gain new business without subtracting from your profit margin.
…one client at a time.
Repeat business is the lifeblood of the service and hospitality industry. The first project or event you do for any new client is extremely important. You want to earn her business for life, not just this one event. You may want to stack your team with additional people to make sure things run smooth and not charge for the added expense. The goal is to win her confidence for the next event she needs while performing to meet or exceed her expectation for this event. Plan ahead to account for this investment and add this expense to your variable cost.
You can not create a package until you know the individual tasks and the time each task will take. To begin creating packages pull the 12 month timeline for planning a wedding and list out how much time is associated with each item. Once you have the estimated time you can apply your hourly rate (full or part time based on 2080 hours) plus your fixed cost per event. Then add up the cost of packages by organizing and sorting the lists. Once you have the total for each package you can apply a discount to show a client how they can hire your al-la carte services or a bundled package which provides a discount.
Performing a break even analysis on your business once your fees are established will help you to set goals such as number of events per year to make a profit.
It will also help you to monitor and grow your business methodically such as:
- how many events you want to do per year
- how many you need to do at a certain rate
- if you increase your rates, you can then decrease your number of events per year
Fixed Cost: Usually described as ‘overhead”, rent, administrative salaries, etc. (which you can divide by the number of events per yr)
Variable Cost: Fluctuate directly with each event, such as time, inventory, etc.
For example: If fixed cost were:
Phone per month 100
Website hosting per month 50
Your fixed cost is 150.00 x 12 =1,800 per year.
If you only booked 4 events per year you would want to add $450.00 to your day of rate. 1800/4= $450
Of course you will be booking much more than 4 events per year and your overhead will also be more over time, but for this example, I’m using simple numbers so you can see how to calculate the figures and adjust them based on your yearly goals.
In the $50,000 per year salary example above, a day of service fee with 3 people (You ($500) plus 2 of your staff members($250) each) should be $1450.00 not $1000 when you add your fixed cost ($450). At 100,000 salary goal you would charge $1950, and at a 200,000 salary goal: $2950.00…now you’re the Rock Star!
I hope this helps you to create a starting point for setting up your pricing and packages to align with your yearly income goals. If you are a wedding or event professional or creative service provider and would like more information I suggest downloading the worksheet (Step 3) to walk through step-by-step how to set your fees and create packages. And if you’d like more insights and tips from experienced event professionals, register for our free webinar on this topic and many others.
Have a great week.