The start of April heralds the beginning of a new financial year for many businesses as well as those working freelance. So I’ve gathered some questions I’ve received about money and finances for this month’s column. Please do feel you can ping me an email if there are specific subjects you’d like me to address.
I’m leaving college and want to set up my own biscuit-making business but don’t know how to work out my pricing – can you give me any guidance, please?
Hello – that is such a good question as so many people when they start out are not sure how to charge for what they make.
As with most companies who make a product to sell, you will need to invest in making the itembefore you earn any money back through sales. This is the same principle whether you are selling wallpaper, cabbages or biscuits.
Firstly take account of what raw materials, packaging and other supplies you need to make your product, then add the cost of labour and the overheads you need, such as electricity, office costs, marketing etc. Divide these by how many of the products you can make in a given time… that will give you your cost price – ie the price it costs to make. You then need to add your ‘margin’ or your profit, which is the part you get to keep. The cost price and your margin added together will give you the price you need to charge.
I wish you the best – delicious handmade biscuits make the world a happier place!
My parents used to work freelance – I saw the real roller-coaster ride they went through over how to charge, not getting paid etc. Now that I am setting up my own small venture, how can I ensure I don’t fall into the same pattern?
You are absolutely right, freelance work can be a minefield, but there are some ways you can set yourself up to help overcome the ups and downs.
- Work out your pricing structure in advance so you know how much you need to earn in a day/week/month or year. Remember to factor in that you may not be working every single day, and will need time out for holidays. Calculate using 3-4 days work per week, 3 weeks per month and 10 months per year.
- Depending on the industry you are in, have 2-3 different ‘offers’ so people/companies can buy you in different ways. I have a morning-only fee, a 4-day coaching package and then a project fee where something unique needs to be priced. Look at doing something similar that works for you.
- Have a very clear set of terms & conditions that you send to clients, whether they are a company or an individual. Get them to sign these, or confirm they agree via email. Ask for part of the agreed fee up front. Perhaps 25% or two weeks’ work. This means that you have a structure set out, with some money in advance to cover slow payment.
- Bill in really regular tranches, rather than leaving it right to the end. This helps your cashflow.
- Practice talking about fees and money with a friend so you gain confidence.
- If you sense that a potential client may be tricky about money, follow your instincts and ensure you nail the contract and have a consistent and thorough paper trail should you need it.
- Get to know the person in clients’ accounts departments who is responsible for paying your bills. They can be really helpful and will be more open on the situation if you have a dialogue with them.
I’ve been running my business for some time now - we do a really good job for our clients. I’m seeing lots of smaller companies coming into this field with much less experience, but they are charging the same or more than us. How can I shift my pricing without losing my current clients?
I hear this a lot, particularly in the creative industries where I do a lot of my work.
Firstly I think you need to look at what they are offering and how they are marketing themselves to their target clients. Give it a thorough review. Now look at what you are offering, how you talk about your services, how you present yourself etc. Do you need to upgrade your own offer to ensure your points of difference are clear, or add different services?
Then I would review your current pricing with your existing clients. It can be hard to shift fees for companies you have worked with for a while. But if you haven’t put your prices up recently, go back to them to say that overheads, wages etc have increased so you need to make some adjustments. They should be sympathetic if you have a good relationship with them.
However the position is very different for new clients who you will be working with in the future. Review your pricing at all levels throughout your business and, if needs be adjust it to ensure you are covering your costs and making a solid profit. This will be the fee you charge your new clients.
In addition look at new ways to charge besides fees. Can you ask for a reward for success on top of your fees if your work outperforms the target you have been set? Can you charge a licence fee for elements of your work where you don’t want to pass the intellectual property across to the client? Can you charge a royalty on sales?
I hope these tips help you take on the challenge from these younger companies.
Erica’s new book Simple Tips, Smart Ideas : Build a Bigger, Better Business is out now. Full of her usual easy-to-use advice, lots of case studies, quick tips, diagrams and innovative ways to think about growing your business – its 288 full colour pages will help you transform your business. Available to order from Foyles, Amazon and all other good bookshops.