How to charge as a sole trader?

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mocmo

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Apologies if this has been done before, I couldn't find what am looking for.

I am wondering if there are some broad rules when charging as a sole trader. I'm not talking about what my service is worth but rather how much I should be adding to a daily rate (which varies anyway based on the job), to account for the fact that I am self-employed. Essentially covering the benefits I lose by not being an employee; equipment, holidays etc

This may be a 'how long is a piece of string?' type of question but I am just wondering if there is a basic percentage I should add to a daily rate.

Thanks in advance
 
It is a very broad question and virtually impossible to answer. You will need to assess the going rate for whatever services you are offering before setting a rate. i.e. what are your competitors charging? What are your clients prepared to pay? Is the market price competitive? What are your overhead costs? What overheads can be directly attributed to the job you are charging for? What is your limitation. ie. time or available work. There is no point in putting a charge together and finding that it is not competitive. If you are in a start up scenario you may need to undercut the market initially in order to get business. All of these issues need to be taken into consideration before you set up your business model. research the market and prepare a business plan based on a realistic assessment of what work you can get and what you need to meet your basic needs. If you can charge above this level then the balance is your profit. Do you need to register for VAT?
 
Thanks for your reply. I did think it would be that kind of answer.

I have actually been a sole trader for a few years and understand about competitive rates, however, I recently have felt that my rates are too low. They'd be ok as a wage for the job I do, but when I factor in the things I would get as an employee i.e. 4 weeks holiday pay or use of a fully serviced office or a vehicle, my rates work out very low. I know there is the market to consider but I was just wondering if other sole traders used a broad rule of thumb....I'm guessing there is no magic rule, I know it's complex!
 
I have worked as both a sole trader and an employee. The downside of being a sole trader is that you have no entitlements to core pay, holidays or weekends off. In other words you cannot compare the benefits enjoyed as an employee and expect them to be the same when operating as a sole trader. Why do you "feel" that your rates are low. Surely you can do some comparisons with what your competitors are charging!! Increasing sharge rate is going to be tough and may lead to loss of business. Why not talk to some of your clients and try to assess their response to a rate increase! Can you offer some additional time or better service in return for an increase in rate? Working for yourself means that you constantly have an extremely tough boss who is never going to get off your back or grant you any soft additional compensations :D
 
Maybe I am asking the wrong question or more likely a question that can't be answered. Thanks for your input.
 
You could look back at previous years accounts and see what your average expenses are per annum. Analyse them see are they likely to change or stay the same.

Step 2 figure out roughly how many days/weeks you should be working for the year.

Step 3 figure out what weekly salary you need. (How much could you expect if you were working for someone else)

Then if you take your total yearly income as calculated less your expenses and divide answer by 52. How does this compare to answer in step 3. If it's lower maybe you are not charging enough.

However you have to look at what others are charging and stay compeditive.
 
May be more in professional services but I've heard a rule of thumb - desired or expected annual income /100 = Daily rate. This allows for a lot of down time and tendering for work you may not get
 
Hi mocmo

Not sure if this helps answer your question.

When I worked in placing temporary accountants, I always tried to charge the client a rate which specified all the costs e.g.

We will charge you an daily rate of €100
We will charge you the holdiday and other statutory pay which we pay to the employee.
We will charge you employers' prsi of 10.75% of the gross amount.
+ our fee

However, some clients insisted that we charge them a fee per hour worked and this is how I worked it out, if I remember correctly.

€100 per day
= €500 per week
= €26,000 per year
+ 10.75% Prsi = €28,795

Number of days worked
52 weeks x 5 days = 260
Less holidays = 20
Less public holidays = 9
Actual days = 231

Rate per day worked €124.65 + our fee

So you need to up your employee rate by 25%

Of course, you have other costs to consider, such as advertising, insurance, travel, etc.
 
Mocmo, it seems that you want to figure out how much money you should be making so that you achieve the standard of living you want i.e. a standard comparable with an employee in a similar role to what you do. Certainly, pricing is part of it, but I believe that you should charge what the market will pay. No market is homogeneous so it may be that instead of using a standard day rate you may find advantage of thinking about the value to your customers of the service you provide and pricing according to this. Essentially, people employ you to do a job if they believe that in doing so you will add value that they cannot themselves add. So, unless you are in a homogeneous market with a lot of similar competition then I would avoid a day rate. And, if you are in such a market with a lot of similar competition then it would be of benefit to think about your strategy and about how you can gain a competitive advantage over competitors. Finally, from the point of view of making more money, there are two additional things you can do: reduce waste and increase the business volume. Every business has non-value adding activities that become part of its DNA, these activities have a cost. By identifying them and stripping them out your bottom line has potential to gain. Increasing business volume goes back to the issue of strategy, and without further information it's not possible to comment more extensively.
 
I realise I am resurrecting a bit of an old thread but for some reason I didn't get any notifications of most of these replies. Thank you to those who replied with such detail, that is exactly the sort of advice I was looking for and I appreciate your input. :)
 
I have just seen this thread and would like to add my tuppence worth.

As a self employed person who charges for my time on an hourly basis, I have taken a very different approach.

I can only work 30 chargeable hours a week. That is the chargeable element of a 5 and a half day work week.

There are hundreds of people who do what I do and thousands of people who want our services. That is a market of hundreds of thousands of hours. I only want 30 of those hours each week.

I charge twice what I perceive to be the market rate. When people tell me I am expensive I tell them that is correct. I spend a lot of time trying to be the best at what I do, I have no interest in being the cheapest. I only need a tiny percentage of the market to accept this argument to fill my 30 hours per week.

If you are not making more as a self employed person than you would as an employee, why not get a job and relax.
 
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