Setting Your Rate and Getting Started

You want to become a consultant, work for yourself, and build your own business in the field of your choosing.  Great!

I'm going to assume that you have at least some background in the field in which you are interested.  Starting a consulting company -- or any company, really -- with zero experience in that field is a dangerous devil's wager.  Perhaps you'll be instantly successful. More likely, you're among the 90% of all business owners who fail within the first year of starting their business, and almost certainly among the 9 of the remaining 10 who fail during their second year.  Coming fresh out of school certainly gives you a lot of advantages over those who have no education whatsoever in that field.  But work experience teaches you the tactical methods for actually running the business day to day.

I could not have started my business in social media marketing without some experience at a small company, and a lot more experience working at a social media marketing agency.  In my three months at Project Bionic, I learned unbelievable amounts about how to actually DO social media.  All my college strategic-level, managerial thinking could not prepare me completely to actually do the things I now do for a living.

OK, so a later post on choosing an internship, in addition to my post on job hunting, and if you have decided that you want to be your own Boss Man, then you need to start by setting yourself some boundaries.

How much you are worth per hour:

A good place to start is by considering how much you usually, or used to, make per hour at a regular job.  Before I started Madison and Vine, that was between $15 and $18 per hour.  Obviously, I think I'm worth a lot more than that (otherwise, i would still be working at my old job, wouldn't I?). When I got started, I priced myself at a minimum of $20 per hour.  Even if I couldn't negotiate a contract any higher than that, my bottom floor, lowest possible rate was $20/hour, and that's not too shabby.

I've now increased my rate significantly, in part because I have realized that the ancillary costs of doing business are much higher than I initially expected.  Which brings us to our next issue with setting your rate.

Things to consider -- beside your time --- in setting an hourly rate.

Do you need any software programs or special equipment to run your business?  Will your job demand that you minimize task switching -- thereby limited how much you can cross-apply your work from one project to another?  Will you provide any end of month reporting, or front end research, that will take additional time besides the time you exactly expect to spend working on the project?  What about office supplies, or lunch while you're 'at work' at home?

For instance, my business requires that I use some kind of social media dashboard to schedule posts and track performance of my many clients' accounts.  I used Hootsuite, (which also has a free version), and costs $10 per month.  However, to continue expanding my business, I will soon need to increase my number of accounts to a larger package -- and I need to build that additional cost into my hourly rate for future customers.

Even free tools like Facebook Business Manager and Facebook Ads Manager require back-end time and effort to set up to do what I need, and that time spent building a lookalike audience for a client is time I need to bill to my client.

I allow my clients to pay me via PayPal, which is great (read: free to set up), but online payment tools need to make money too, and usually keep about 2.5% from your invoice total for processing your payment.  Does your hourly rate include extra margin for processing fees?

Some people, like graphic designers or accountants, might focus on one project at a time until that project is complete.  Tracking your hours can be relatively easy.  But what if you are checking all of your client pages for the morning sweep, answering emails from any and all of your clients, then harvesting articles from your Google News update to assign to the content calendars of all of your clients?  Suddenly, tracking your time becomes a lot more challenging.

I provide my clients with basic reports on our progress each month, contemplating what went well or poorly, and making recommendations for next month.  I do my own invoicing (and you probably will too), which takes time.  Reminding your clients to pay those invoices also takes time.  To keep myself on track, I use project management tools to organize my to-do lists (and in a freakish turn of events, every single one of my clients who uses a project management tool uses a different tool.  So, yes, I know Trello, Evernote, Podio, Asana, and Basecamp.  I.  Know.  Them.  ALL.).  Just keeping on top of what you're supposed to be doing one day to the next can be a herculean feat -- even with a project management tool -- and using it well will require that you take time from each day to actually use it.

Will you regularly use your printer for projects?  Better make sure you have enough paper and ink, not to mention pens, sticky notes, envelopes, and file folders.  Hello office supply store!

Sure, you're probably not commuting to work every day when you're a freelance consultant, but you still need to eat lunch.  Do you have easy to make grub on hand, and snacks, and oh God, do you have enough coffee?!

Whew!  That's a lot of hidden costs to consider when setting your hourly rate.  Maybe that $20/hour figure feels a bit low.

Now that you have figured out how much you want to earn per hour, and how much it will cost to do that work, how many hours will it take to complete a project?

We'll turn our sights next week on the daunting challenge of bidding a client project.