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The NEWORK Centre
Level 2 Willbank House
57 Willis Street Wellington
Phone 499 1048
e-mail nework@xtra.co.nz

No 10 October 2003

2004 - It's here

Welcome from the Trustees and volunteers of the NEWORK Centre.

Being the first members' newsletter of 2004, we trust that this year will be as good as last year, if not better and will lead on to better things in 2005.

Planning?

As a Portfolio worker, I rebel at the idea that is required of so many that I should have a formal business plan. My business plan is in my head, I know what my values are, want I want to do, what I want to achieve and & ...

Obviously other individuals may need something a little more structured.

Sit down with pen and paper
Decide on two or three things you want to achieve
Prioritise these things
For each, write down two or three actions/steps that will make it happen
Put a start and completion date against each action step
Put it in your diary (in the front where you will see it regularly

Every 3 months or so make an appointment in your diary to review how you are going

It may not be a full business plan, but it might be useful to show others that you have a direction sorted out.

How Much Are You Worth?

It has been estimated that there are over 200000 home-based businesses in New Zealand. today. Whatever the number is, it's growing, and many of them sell personal services rather than a tangible product. Consultants of all types, desktop publishers, and website developers, just to name a few. How do they establish a price for their work? Unfortunately, they often do it poorly. What follows may be seen as speaking to the converted (as you are already in business), but it may be useful for others.

If you sell a product it's not that difficult to know how much to charge. You begin with your cost and calculate your price based on the margin you are using. Actually, it's not quite that simple. There are several other issues. Are you going for high volume, low margin, and marginal service, or lower volume, higher margin, and a high level of customer support. Many industries have margin standards to use as a guide. And we can't leave out demand and competition, the harness-mates pulling that ever present market phenomenon, "what the market will bear." It's not easy to price a tangible product, but it is typically easier than pricing a service.

When you are putting your pricing together, don't look back. Don't think about how much you made per hour or per week at your last job as an employee. That amount and the one you should be charging your clients are totally unrelated. Here are some reasons why.

When you work full time you are assured of being paid for at least 40 hours. Hopefully, you make enough to provide for the needs of your household. But other than those living expenses, your savings, investments, and extravagances, your take-home pay is net to you. Unlike an employee, as a services business owner you are not likely to be able to bill 40 hours a week, especially in the early stages of your business. Here are some of the reasons for that...

Why you charge more than an employee.

When your business is new, you will be lucky to have prospective clients to talk to at first, let alone paying customers. But don't worry. Your cold calls and networking will pay off sooner rather than later.
You can't bill for your service every day from 8-5 because, even if your business is going well (and you do work those specific hours). You still have to prospect, market, deliver proposals, and provide initial interviews with prospective clients that, at least an hour of which, you not be able to or may choose not to bill for.
And of course, there is all the other stuff that every business owner must do. Networking, planning, administration, the list is long. Sure, you can do a lot of this at night, on weekends, at "slow" periods, but not everything. And as a portfolio worker, you have a commitment to the total portfolio that includes recreation, family, friends and all those other things that you want to do.
There are also the necessities of professional development, keeping yourself up to date with the developments that are occurring in the area of your speciality.
When you own a business that delivers services, and when the only delivery person is you, you are a 100% extension of yourself. In this case, your only income leverage options are to work more hours, or charge more per hour or per project.

By now you should be getting the mathematical picture that you may not be able to bill 40 hours each week. You now understand why you have to charge your clients more than you charged your last employer. And we haven't even talked about the fact that, unlike your net take-home pay as an employee, your receipts as a portfolio worker must first go to pay the expenses of your business, and then to you and your family.

I know, you want to know how much. OK, here's an indicator, but I can not give you your pricing. I don't know how much you should charge. I want to dramatise the ratio. Here goes: If you made $15 an hour as an employee, as a personal services provider, you probably should charge $45 to $60 an hour. This is where you may be saying, "Who's going to pay me $45 an hour?" The answer is nobody, if you have that attitude.

Don't let your lack of confidence cause you to under-price your services. And don't underestimate what you represent to your clients. Home-based business owners who provide personal services that some prospective clients may incorrectly think that, since they work out of home, they don't have any expenses. Remember that you are charging for your expertise, not your location. But, in any case the location does have expenses - the telephone, computer costs (internet, programs and replacement or upgrading), electricity, and those business costs mentioned above.

These are some of the reasons why you should charge more

Why you are worth more.

You know how to do things your clients don't.
You know how to do things your clients don't have time to do themselves, even if they knew how.
Your clients don't have to adopt you, they rent you. And then send you home when your work is delivered.

A lesson from the rental industry - A rental car costs $50 a day. That works out to $1500 a month for a car that you could own for $350 a month. But you didn't think of it like that when you rent a car, do you? You had a special need, the rental company delivered the product and provided a valuable service just in time, and you gave it back when you were finished. No mess, no fuss. Just like when a company rents you.

When you price your personal services, think like a rental car company.

The NEWORKer can be viewed online at the Work & Age Website