I don't think either desired income, overhead, or desired profit should have anything to do with establishing one's rate in our business, particularly for someone getting started, but also for those that are already established. Let
me throw out a couple of examples: I have a pretty large, attached office in my home. This could easily cost me $500 to $1000 per month in a decent office bu
ilding. Because my overhead is less than my peers who have to rent space, should I charge less?
Another....(not to pick on COBOL programmers, but...) What if I were an average COBOL programmer for which client companies were used to paying $50/hr, but due to my desired annual income, I come up with $100/hr?
Yet another.... What if I'm just starting out with absolutely no track record in consulting, and established people in my field are getting $75/hr and your algorithm shows that I also
should charge $75/hr? Just one more....I'm a wiz in a very unique specialty where there are few other consultants and much demand. I live in a modest area, don't n
eed an office, drive a Pinto, etc. <g> and my calculations show I should be charging $30/hr. Should I?
I think our rates are market driven and clients don't give a darn about how much our overhead is or how much we desire to make. Their only concern is value received; are we worth the money they're paying us (or what we're asking for) in their eye
s and how does it compare to what others would charge them for the same task? That means determining the "normal" rate for wha
t we do and measuring ourselves against others in the market to determine whether we can charge more, or must charge less to stay as busy as we'd like to. The other test, of course, for those already established, is how much business
they're getting at their current rate. If it's more than they can handle, a rate increase is probably called for. This is not to say t
hat the guidelines you suggested are without value, but that they're better for after-the-fact analysis than for establishment of rates in the first place.
For example, if my net income is lower than I'd like, I have to look at the points you mentioned:
Overhead - If the o/h burden is too high, then I've got to effectively reduce it. Perhaps by moving to less expensive quarters or by bringing in a partner.
Within the low range of paying the rent and the high range of making enough money to hobnob with Rockefeller, there is an incredibly amount of room to set a rate to live the way you want based upon a complex of factors including workload, livi
ng style, overhead, and so on. You CAN and SHOULD base your rates on what you would like to earn and how you would like to live.
Obviously the market and costs influence the high and low end of your expectations. Too low and you do starve while working yourself to death. Too high and you starve with no clients. But to unhook your desires fro
m your business leads to these rampaging monsters of greed we often see stomping through our newspapers; make money and hang the real cost in terms of economic damage or human suffering.
You don't owe anybody else a higher rate just to make it easier for them to work. You don't owe anybody else a lower rate just to make it easier for them to pay you.
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