Welcome to your first newsletter as a professional member of an International Association of Professional Organization (IAPO) association. Here you will find practical advice to help you benefit from your membership and achieve even greater success in your career and business.
In This Issue
Is It Ethical?
Every issue we will answer a question of business ethics. In this issue we feature a question frequently asked by entrepreneurs.
Asking Competitors’ Fees
I’m setting new fees for my consulting business and trying to figure out average fees in my market. Everything I’ve read about setting fees says I should call around to competitors to find out what they’re charging. Is it ethical to ask my competitors to tell me their fees?
Yes and no. There’s nothing wrong with calling a competitor and asking their fees. If they have standard fees that they’re willing to disclose to anyone who asks, it is ethical to obtain information this way.
However, it is unethical to pretend to be a prospective client when calling a competitor. Lying to someone, taking that person’s time, getting their hopes up, then using the information they provide to compete with them isn’t ethical by any stretch of the imagination. Imagine competitors doing that to you.
Submit your question of business ethics to firstname.lastname@example.org. If we publish it in a future newsletter, you will receive a free FabJob guide of your choice.
Why People in Your Dream Career Might Discourage You
If you are thinking of getting started in a new career, you have probably heard that you should talk to people currently working in that career. However, if you are hoping that everyone who works in the industry will welcome you and be willing to help, you may be disappointed.
Instead of getting fabulous career advice or job leads, you may be left feeling discouraged about the career and thinking you should consider doing something else with your life.
If you feel less than excited about a career after speaking with someone working in it, you are probably talking to the wrong person. Here are some reasons an industry expert may not be helpful to newcomers. Click here to read more.
A Formula for Setting Your Hourly Fees
There are many options for setting your fees including: hourly rate, daily rate, flat fee, per project, monthly retainer, pay for performance.
This article looks at one of the most popular options – an hourly fee. It’s a good option for professionals because, as Forbes reported, “customers are more comfortable working on an hourly basis with new consultants.”
So how do you determine your hourly rate? While you could simply pick an hourly rate you would like to charge (such as $100 per hour), or an annual salary you would like to earn (such as $100,000) divided by the number of working hours in a year to determine your hourly rate, most professionals take a more systematic approach in setting their fees.
The information below is condensed from 10 pages of advice on how to set your fees contained in the FabJob Guide to Become a Business Consultant.
To ensure that your costs are covered and that your business can prosper, it’s recommended that you do some number-crunching using the formula below. Try it with different figures (such as different annual incomes) to help you settle on an appropriate hourly fee to charge.
1. Decide how much you want for your annual salary.
2. Estimate your number of working hours per year.
3. Estimate how many of those hours will generate revenue.
4. Determine your overhead costs.
5. Decide how much profit you want to earn.
6. Calculate your hourly rate.
Once you have figured out the other numbers, you can easily come up with an estimated hourly rate, which you would then round up or down to come up with a fee that appears professional. Here’s the hourly rate calculated from the numbers used throughout this example:
$80,000 salary + $48,000 expenses + $12,800 profit = $140,800
$140,800 divided by 1,200 hours = $117.33 per hour
(which you might round to $120 per hour)
To see what you would need to charge in order to earn a larger salary, work fewer hours, spend more on overhead, or make a larger profit, you can plug other numbers into the formula.
For example, if you want to work the same number of hours, but earn $100,000 per year instead of $80,000, spend $5,000 per month on overhead instead of $4,000, and earn a profit of 15% instead of 10%, here’s how you would calculate your hourly rate:
$100,000 salary + $60,000 expenses + $24,000 profit = $184,000
$184,000 divided by 1,200 hours = $153.33 per hour
(which you might round to $150 per hour)
Likewise, if the figure you come up with doesn’t seem reasonable for your market (e.g. you want to consult to non-profit organizations in a small town), and you are willing to work more hours, earn a lower annual income, spend less on overhead, or make a smaller profit, you can plug in figures that will reduce your hourly rate.