Do You Know Your Worth?

Do You Know Your Worth?

It’s not enough to know your worth as a contractor: you have to charge for it, too. Trying to give the lowest quote can backfire – sure, you might get a higher quantity of gigs, but to truly convey the quality you provide, you need to charge what you’re worth. In order to do that, you need to figure out what your rate should be – and sometimes, that can be tricky.

Calculating your Personal Value

How much should you charge for labor? That depends – how much debt do you carry from your education, if any? How much does it cost to pay yourself a living wage for a day? If you’re managing only yourself and not a company, how much do you need to comfortably make in order for you and your family to survive and thrive? Having a concrete number of what you need to make each month or year in mind will give you a good starting point for figuring out how much you need to charge in labor.

Calculating the Cost of Business

The cost of your business, even if you’re a solo contractor, is part of your worth. Figure in the obvious things like the cost of tools, the gas to get where you’re going and any costs associated with running your business like insurance, advertising or promo materials.

Don’t forget to add in the not-so-obvious costs, too, like accounting services for taxes, the price of any overhead you might need like electricity in your personal workshop or material storage and vehicle maintenance or wear and tear. Trade association memberships, union dues or other costs can also be factored in.

Doing the Math

Add up the value of your personal and business costs. It’ll probably seem like a really high number — don’t worry, that’s normal. Add up every expense, hidden or otherwise, and then add what you need to make on top of those expenses to pay yourself and any employees. Add in an estimate for what you would need or would like to put back into your business to keep it running smoothly. For example, if your current method and level of advertising is adequate, factor in a similar number to what you spend currently. If you’d like to draw in more business, allow for a bigger promotion or advertising blitz.

Now think about your ideal work schedule – how many jobs would you need to cover costs and still pay yourself and run your business? Figure out a number of jobs that you can reasonably take on to make that amount in the period of time you’re accounting for – monthly or yearly.

Compare Your Rate

Compare your figures to what other local contractors are charging. If it’s much lower, you can safely raise your rates and still be the lowest bidder on most jobs. If it’s much higher, consider the factors that set you apart from the other contractors and see if you can justify the higher salary: if you’ve been doing the job for 20 years, for example, or if you possess a specialized skill or certification. Use this as a selling point to net higher quality gigs that are willing to pay what you and your business are worth.

Calculating Labor Costs

Calculating your worth and labor costs isn’t always cut and dried – you may live in an area so oversaturated with unskilled labor, for example, that you’ll never be the lowest priced contractor available. Use your skills, talents, and experience to sell yourself to your clients and convince them to use you over the competition, perhaps reminding them they get what they pay for. In the end, you may find you’re taking on fewer jobs but the ones you do take on are higher paying and higher quality.

What formula or method do you use to figure out your rates?