ETO Home

Recent news items
Site search
Site contents

Telework
Teletrade
Telecooperation

Events
Links
Resources database

Presentations
Definitions
FAQs
Statistics

Discussion
Feedback
Advertise at site
Site management
Privacy policy

Page updated:
3 April 2000

Page owner:
ETO Site Team

This is one of a cluster of FAQs about Finding Work and Finding Skilled People on the Internet The right hand menu guides you through this cluster Self-employment is on the increase. Some people choose self-employment, others are trying a self-employed approach to the problems of unemployment. Others, who may have acquired new skills, try to get some work experience through self-employment as a stepping stone towards a new career. With the growth in use of the Internet many self-employed people seek work on a teleworking basis. Self employed teleworkers have to negotiate work contracts with their customers. If they pitch the price of a project or their daily or hourly rate too high, they risk losing work opportunities. But there is an equal risk of pitching too low - not only may your earnings be lower than they should but some customers are suspicious of low prices, feeling that they reflect low standards. This FAQ explains some of the basic principles of pricing and is aimed at helping you to make the right approach. The "four Ps" of marketing Your pricing objective Breakeven pricing Elements of your breakeven costs Chargeable time Daily charging rate benchmark Other costs Price mechanisms: earning rate and charging rate Perceived value pricing Competitive pricing Productising your services Summary - get organised and sharp about pricing

Finding work, finding telework   and finding skilled people   (this page) Online services for finding work: introduction and overview    Should I be a teleworker? Can I find work? Pricing your skills (this page) Marketing your services    Finding a (teleworking) job online List of sites/services Tested and Selected services Other FAQs Home page

The "four Ps" of marketing

Product, Place, Promotion and Price - these are known as the Four Ps of marketing. This page covers price, other pages address marketing, including promotion and positioning - another word for "place". With good planning, lots of effort and your fair share of luck, let's hope you become familiar with the Fifth P of marketing - Profit.

Your Pricing Objective

Before you jump in with a daily rate for your time that you think seems about right, take a little time to think about your pricing objective - what do you hope to achieve?

1. Survival pricing - charging the lowest rate you can, while covering your costs (including your cost of living and of keeping your skills up to date). This is often called "breakeven pricing".
   
   
2. Perceived value pricing - this approach suggests that you raise your price level substantially above breakeven, positioning your offer as being at the top of the quality range in your field but still competitive and offering good value for your customers.
   
   
3. Premium pricing - positioning your service "above the herd" and going after those customers who want and can afford the best.

Its obvious that with option 1 the main factor is your own requirements, while for options 2 and 3 you need to investigate the prices charged by competitors. But even with option 1 competition has to be taken into account. For example, what if there are plenty of equally qualified and competent people around who are happy to work at well below your breakeven rate? A future FAQ, Choosing your Market, will address this.

To be informed when significant new information is added to this site, register an interest.

Breakeven Pricing

Write down all your costs for the year. Divide that by the effective number of working days a year. This gives you a breakeven pricing structure based on an expected number of days worked. Remember that:

• You cannot work seven days a week, 365 days a year. Allow for adequate leisure days, holidays.
• You need to keep your skills up to date - allow for some time spent in training and learning.
• Allow time for marketing activities. If you are 100% occupied with customers this is profitable at the time but unless you keep up your marketing you may suddenly be out of work - customers usually do the unexpected! In consultancy circles this is called the "feast and famine" effect.
• Don't assume you will automatically be able to work on the remaining number of days - sometimes you may be without customers, or sometimes the pattern of customer needs means that you could be sitting and waiting for work that has been agreed.

Do three versions:

• A pessimistic version so that you can survive the worst scenario;
• An optimistic version for when things go well; and a
• realistic scenario which may well represent what eventually happens.

Elements of your breakeven costs

• Office costs:
  Let's imagine that your office costs (heat and light, postage, telephone and other bills) add up to €300 per month or €3,600 annually.
• Equipment depreciation:
  (Say) 33% of (say) €6,000 worth of equipment, making €2,000 a year - this means you plan to replace the equipment every three years or so.
• Research and learning:
  (Say) you plan to spend €3,000 a year on items such as subscriptions to associations, purchase of books and reports, attendance at training sessions and conferences.
• Salary equivalent:
  The money you plan to take out of the business for living expenses, personal spending etc - say €50,000 pa.
• Taxes, pensions, insurances:
  To this you need to add appropriate amounts to provide for your retirement, to pay all due taxes, and to insure against various risks that might impact your earning ability. Let's make this 50% of the salary equivalent, ie €25,000.

So the baseline total of your fixed costs would be €83,000.

However, you may not manage to bring in this amount, so to get to your breakeven level you need to consider: "How could I cut back on these items if I really needed to?" You might then decide that in order to get the business going you could initially live with lower costs all round - say 150 a month for office costs, 20% depreciation (making items last an average of 5 years), only 1,000 on research and learning, and a bare minimum of living costs, say 25,000 plus, say 40% instead of 50%. Now your true breakeven has come down to €39,000. This is the pessimistic figure.

Against this is your initial €50,000 the optimistic (top) figure for earnings (how you would like it to be) or the realistic figure (what you really expect to happen). Let's say it's optimistic. So we can say that your fixed costs are in the range:

• Pessimistic = €39,000
• Realistic = €51,000
• Optimistic = €83,000

Chargeable time

What is the maximum number of chargeable days you could work if the work was there to be done? Many people starting on self-employment think in terms of a 52 week year, with three or four weeks for holidays, plus some public holidays, and assume they will earn money of about 220-240 days a year. This can be deceptive!

For employees, a company would normally expect to achieve between 150-200 effective "production" days. This is based on a calculation such as:

• Working weeks = 46 (allowing for six weeks annual leave)
• Public holidays = 15 days (three 5-day weeks), leaving 43 weeks
• Training, sickness and other non-production time, say 4 weeks, leaving 39 weeks
• Number of working days = 165

"But", you may say, "I will be prepared to work long hours and long weeks to get going". True. But in deciding how to price your time, is it better to plan for long hours and long weeks and little time for relaxation or to plan for a healthier work-leisure mix?

Daily charging rate benchmark

• Pessimistic: €39,000/165 = €236 per day
• Realistic: €51,000/165 = €309 per day
• Optimistic: €83,000/165 = €503 per day

Therefore your planned daily charging rate by this method should be €309 or pro-rata - say €40 per hour.

Other Costs

Price mechanisms: earning rate versus charging rate

Here are some views expressed in the Telework Forum:

Kari Burns <Kari@olywa.net>, wrote:

"...I charge $50 US dollars per hour for information brokering. I have a one hour minimum, after the first hour I will break down billing into 15 minute increments. If there is time left on the original hour I will credit it towards more work in the future....."

Beatrice Fontaine <beatrice.fontaine@belgium.online.be>, wrote:

"...In my case, I charge a minimum of a half-day because the work done includes the entire briefing before and the transmission and debriefing after..."

Horace Mitchell <horace@mta.i-way.co.uk> wrote:

".... one option you might try would be to ask for a monthly retainer, under which you would undertake a maximum of X hours of work, plus an hourly rate for any work over that minimum. This would save you and the client(s) a lot of time and effort and costs associated with bitty invoicing and accounting, and would also make this a <relationship>, as well as encouraging them to use you routinely..."

In a separate discussion Horace wrote:

"In discussing a major prokect with a customer I always tell them that I have two rates - the rate for when I am working in my own office and a different (higher) rate for time when they want to see me on their site or in the field, for example at an event. This makes the point that I can work more productively at my own office base; it also reduces the tendency for a customer to want to see you and to value your support based on how much they see of you, as opposed to how much productive effort you put in and what results you deliver!"

Perceived Value Pricing

Assuming the service you can deliver is actually required by the customer, they might look at it like this:

What is the scarcity value of what you can do?

If your skills and experience are in high demand, and there are relatively few people who can deliver in this field then customers may well be prepared pay substantially more than the breakeven cost or your realistic charging rate. This happened in 1998 and 1999 when the Y2K scare raised the market rate for programmers with experience in COBOL. Today it is raising the market rate for people with deep skills in web-related programming, knowledge management sytems such as Lotus/Domino etc.

What is the leveraged value to the customer?

Obviously the customer always thinks that what you contract to do is worth (to the customer) at least as much as what you are charging - otherwise the customer wouldn't bother! However there may be significant extra "leverage value" for the customer. For example, consider the IT manager in a company where the chief executive suddenly insists that some aspects of the company's website has to be revamped very quickly, at a time when the IT manager is about to change web services suppliers but not quite at the point of making the decision and negotiating the contract. The IT manager knows the old supplier isn't motivated to give them top priority; but doesn't want to get tied up with one of the other suppliers. Someone who can do the immediate job well, but is not bidding for a permanent arrangement, is worth a lot more to the IT manager than the simple value of the work to be done.

Is Your Service A Life Saver?

If your service is required at short notice, in an emergency, overnight etc. the perceived value of your service is now greater than normal. So you should have a pricing structure for emergency jobs. One characteristic of the new networked economy is to accelerate the pace of business change and create more opportunities for people and companies that can offer fast response.

So, we take the benchmark pricing figure and adjust it accordingly. John Hanna, 73363.767@compuserve.com, original author of this FAQ, says:

"When I do this I can often adjust the standard price by a factor of three or four or more."

Beatrice Fontaine <beatrice.fontaine@belgium.online.be>, wrote:

"...People have a tendency to see payment as something that is done on a salary basis by people that are always there, active or not. ...Others... look for individual expertise because it lies in an area not covered by their own staff. .. They come to..ask..."just-in-time" for something that it took..a long time in the past to be able to find quickly now, and that is the added-value.

Second, the information seems to be highly relevant for the customer's future. So your expertise is vital. Some firms have come to realise that this just-in-time investment is a good one, with some you have to argue. But your position remains the same: you are selling the intellectual property that is needed."

Competitive Pricing

• The customer: can the customer do this themselves? At what cost? What would be the cost of employing someone twelve months a year, compared with your service which is bought in only when needed?

• Other consultants exactly like you: Find out what other teleworkers are charging for similar work.

• Other consultants more expensive than you?: If you are working on your own, possibly from home, your costs will almost certainly be very much lower than theirs. Against this you may lack the "image" or "big company credibility"; you almost certainly have less marketing muscle!

• Other ways of getting the job done: for example, if you are doing research, can the same or similar be bought in from one of the big research companies and at what price? If you are doing translation, what are the tasks for which machine translation is now good enough, and what are the tasks for which an expert human translator is still certainly essential?

However, if you find that you can't adjust to your benefit, and that you even have to lower your price, then Stop and Think . . . . is there something wrong with my product? Now is the time to look at our FAQ on Marketing your services as a teleworker. You either need to improve your product, your promotion, your reputation or the market leverage you can exert through your networking

Productising your services

Productising a service is a major topic in itself, too complex to be covered here, but a few examples will illustrate how it can be done with different types of work and skills:

• Translation: Price your service on the basis of a cost per web page - with bigger or more complex pages you will earn at a lower rate, with smaller, simpler pages at a higher rate. You can easily do some surfing in your target markets to assess what kinds of page size and page complexity are likely to arise.
  
• Internet research: Specify and describe a range of different "search offers", each with a definite price. For example, you might offer to "Search and report on English language sites that have a discussion forum, mailing list or newsletter service", with your pricing based on a "Per topic" basis.
  (This task is based on a project that was offered, won and completed in our assessment of the smarterwork.com service - see "Selected Sites")
  
• Research and reporting: Instead of looking for clients who will specify research for you to do, design and complete a research project that will yield a report you can sell. Say the project would have been charged to a customer at €8,000, you will need to sell 80 copies of the report at €100 each to earn the same revenue. But if you can go on to sell another 80 copies you will have earned twice the revenue for the same effort. This depends of course on choosing the right topic (one that will sell), making sure that your report is good value for money, and understanding how to sell it online - or allying with someone who can do this for you.
• Website reviews: This could be a coming market. Many companies are becoming conscious that the website they built in their first flush of enthusiasm to become an e-business is not as good as it should be. You might as an expert surfer develop some kind of "website audit" that you can sell by finding sites that are not very effective and contacting the site owner.

All of these approaches switch your focus from selling your services to selling products. In general it is easier to sell products "at a distance" than to sell services - the customers know what they are buying and there is a much lower overhead of explanation and negotiation.

Summary - get organised and sharp about pricing!

Don't do it on the fly, as and when opportunities arise.

1. Work out your costs in some detail - be confident about your breakeven level; you might want to do some loss leader work to get a track record but always know for sure when you are profiting and when you are losing.

2. Have a clear idea of how much work capacity you really have - in days or hours - allowing for holidays, retraining, leisure time etc.

3. Set your breakeven pricing range, based on daily, hourly or monthly rates.

4. Check your breakeven pricing against what the customer will think your service is worth. You can then look to increase your price as much as possible, whenever possible. The "right" price is the price that the customer will pay, while feeling that they are getting value for money.

5. Check the competition. Again, open your mind up to think of all possible competitors. Check your position against them and adjust your price accordingly.

6. You will now have a range of pricing options that, at worst, make sure you cover your costs and, at best, allow you to earn a good living, building positive relationships with satisfied customers.

7. Finally, write down exactly what your pricing approach will be. You may or may not publish your pricing formula - it can be an advantage or a disadvantage according to the market. But make sure you do have a formula. Be prepared to be be flexible in order to win business - but know what your profit margin is - or your loss!

Janet Leatham <janet@btinternet.com> wrote:

"....Work all this up into some form of standard terms of business which you give to your client(s) at the outset. This has a number of benefits:

1. It will help save you agonising over most contracts in future (though you should write it to give you some leeway - perhaps refer to "the rate as quoted in the accompanying letter"). You can have different terms for different clients/types of client but need to ensure you have a record of what terms were sent/quoted to which client.
2. It also saves you looking indecisive when asked "How much?".
3. It gives you a bit of cred, looks professional and is also what a lot of firms ask for before even starting to talk business.
4. You can refer back to it if things go wrong/the client queries your invoice / etc. (in other words it's worth its weight).

Include in it how soon they have to settle your bill, etc."

To be informed when significant new information is added to this site, register an interest.