The Ledger · Business
Before you quote: the three numbers that set your price
Most first-year pricing mistakes come from skipping one of three numbers.
New self-employed people usually price by looking at what others charge. It is a fair start, and it hides the question that matters: what does your year need to bring in?
The first number is your target: the income you want to take home before tax. The second is your costs: tax set aside, health insurance, software, equipment, and the days nobody pays you. The third is your billable hours, and it is smaller than you expect, because selling, invoicing and learning also take time.
The arithmetic is short. Add the target to the costs, then divide by the hours you can bill. With an invented target of $90,000, costs of $18,000 and 1,000 billable hours, the floor is $108 an hour.
That is a floor, not a price. A price also reflects the value to the client, how scarce your skill is, and what the client would otherwise pay. But a quote below the floor means the business loses money on every hour sold.
If the floor feels too high for your market, change one input on purpose: raise the hours, lower the costs, or narrow the target for a year. Do not lower the price and hope.