What Should Your Service Fees Be?
By Karyn Greenstreet
copyright © 2004, by Karyn Greenstreet. All rights reserved.
You must decide for yourself whether you will charge for your services or not. Should you decide to charge, the next question is "what should my fee be?"
1. Determine What You Need To Make
When setting fees, part of the calculation is how much you need (and want!) to make. If you first decide how much profit you need to make, you can then determine what to charge in order to make that profit. It's necessary to do a personal and family budget first, to determine the minimum you need to bring into your home each month.
In addition to that minimum, add the amount you'd want that would give you the lifestyle you want. If you're just starting a business, you may have to make ends meet with other income or savings, but you need to have a goal of the full amount you want to bring home each month when you have a successful business. While income isn't the only measure of success, NOT making enough money in your business will bring frustration and dissatisfaction.
2. Research Your Fee Options
First, examine carefully your skill level. It is common practice in business to charge based on skill. The more skill and experience you have, the more you charge.
You have several choices on how your services will be billed:
- per hour
- per session (regardless of how long a session lasts)
- per month
- per project
- per "program" (you define what the program includes and how long it lasts)
Next, find out what others are charging for similar services in your area. You will have a difficult time getting clients if you set your fee at $100 per hour when other providers in your area are only charging $60 per hour unless you can justify the added value clients will get for the additional cost. One interesting note is that you can charge much more in big cities than anywhere else: in the suburbs you might be able to charge $60-$75 a session and in New York City charge $150 a session.
Ask others in your industry what they charge. It is not collaboration or price-fixing to simply inquire as to industry norms. Ask your attorney if you have concerns about this area.
Another consideration is how much your education cost you. As an example, some massage therapists can spend $4,000 to $6,000 to get their certification. These education expenses, as well as other business expenses, need to be figured into the mix when setting fees.
Finally, decide if you will offer discounted fees and how you will apply them. Some people create their fees on a sliding scale, based on what the client can afford. Others offer either full fee or free sessions, with no discounting in-between the two extremes. Some take one or two free clients per month as a way to give back to the community, or volunteer their services with a local non-profit organization.
3. Determine Your Payment Policies
Decide if the client must pay in advance or if they can pay after the session is complete.
Also decide if you will offer a discount for early payment of invoices. This encourages those clients you invoice to pay their bills early, thereby giving you earlier access to your cash.
Finally, if you will be invoicing clients, determine how much time they have to pay. Typical time periods are 15 days or 30 days after the invoice date. You must be willing to be assertive in collecting past-due accounts and be firm with people who don't pay on time. For example, if your policy is that payment must be received in your office by the first day of the month, consider warning, then firing, clients who habitually are late in sending in their payment.
EXERCISE - How Many Sessions Do I Need To Do?
For this exercise, you'll need a piece of paper and a calculator.
- Calculate the income you need to bring into your home (after taxes and expenses) so that you'll have a comfortable life. Don't short-change yourself here; be honest with what you really need.
- Add 30-35% to that number to figure out the gross income you'll need. This covers taxes and expenses. (Adjust the percentage if you will have an unusual number of expenses.)
- Determine the fee you'll charge for one session (hour/program).
- Divide your total income by the per-session fee to calculate the number of sessions you need to do in a year.
- Now divide the yearly sessions by 12 to determine how many you need to do per month.
- Assuming you'll work an average of 20 days per month, divide the total monthly sessions by 20 to figure out how many you'll need to do per day.
- Desired Net Income: $35,000
- Plus 30%: 35,000 x 1.30 = $45,500
- Per Session Fee: $60
- Number of Sessions per Year: 45,500 / 60 = 758.33
- Monthly Sessions: 758 / 12 = 63
- Average Daily Sessions: 63 / 20 = 3.15
Per Session Fee:
Number of Sessions per Year:
Average Daily Sessions:
Now, look closely at that final number. Can you physically and emotionally do that many sessions in a day? For instance, if each session is one hour in length (with 15 minutes of rest time in-between sessions), do you have enough time and energy to do that many sessions?