Forums: Discussions for entrepreneurs and small business.

I am working on establishing a business providing technical services (product design, CAD drawings, prototypes, technical illustration, that kind of stuff) and I am having a heck of a time figuring out what to charge.  What I did initially was figure out my monthly cost for my pay (about the same as I make as a mechanical designer now), plus the monthly payment on a loan for the equipment I need to have, then divided that by 120 hours/month, then added about 15% for incidentals and profit.
The trouble is, I still have no idea if that`s a reasonable number.  
There doesn`t appear to be any sort of industry association for technical service providers, so about the only way to get useful info would be to ask similar businesses directly, but are they going to be very cooperative with a competitor?  I`m sure the figure I came up with is competitive due to low home office overhead, but I would feel better if I knew for certain what I`m up against.  So, if anyone can give me some input, I`ll be eternally grateful.
 

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Ryan
http://www.solatechnical.com
http://www.daisey-designs.com

Have you included self-employment taxes? Planning to work 30 billable hours a week seems high to me. Have you factored in time and costs for sales and marketing? You`re not going to be paid for it directly but it has to be included in your rate.

What are your potential customers paying for comparable services elsewhere? Surely you can find that out. That might be the better way to establish your rate.

I highly recommend reading The E-Myth Revisited. It`s all about technical people who start businesses. A good read.


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I agree with Steve. Your rates are way too low and you should be thinking about the rates in terms of what other people are charging.

There`s two things I`ve noticed, both working in your favor. Most of your competition isn`t that good, they`re flaky or not very heads up about what the client really needs. And they`re already charging more than you think you`re worth.

So I like to research what the going rate is and where the competition is screwing up. Then I go to the client and say the market rate seems to be in x range, i`m charging in upper end of that range because I don`t make y mistakes, and if you`re project is immune to y mistakes then I`d recommend that you go with somebody cheaper.

The upside to charging in the upper range is that you can be pickier about the projects that you take. I`m really picky about avoiding projects that I know are going to fail, those are just going to make you look bad and make it harder for you to find work.

For example, my major client has a lot of poorly defined projects that don`t make them any money and a few high profile projects with huge margins and a high stress on professional quality. I say to them that I understand I`m charging 50% more than their other contractor and that I only want to work on projects where that sort of cost makes sense to them. The result is that the projects end up being considered huge successes and I`m paid enough to make sure I do a good job. It`s self-fulfilling after that.


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CEO, CrowdVine
www.crowdvine.com

I did allow 20% extra for taxes, correct me if that`s not a good number.

What would be a reasonable estimate for billable hours per week?  I assumed 30 would be OK, but now that I think about it, that probably is a little optimistic.

Marketing has me a bit mystified.  Similar existing businesses don`t appear to advertise much, apart from the yellow pages, their websites, and some business directories.



Really?  That is something I haven`t heard before (about competition not being very good).

I totally agree that pricing by the market is the way to go.  I was just trying to set a minimum baseline where my personal life would not be negatively affected.

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Ryan
http://www.solatechnical.com
http://www.daisey-designs.com

Re: is the competition any good?

I`m sure they`re plenty smart. Ask the customers if they`re happy with the final product. I think you`ll find that the end result is usually not that good and even getting to a good result is painful.


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CEO, CrowdVine
www.crowdvine.com