Management

CAD Manager's Q&A: How Much to Charge

13 Apr, 2006 By: Robert Green

If I go out on my own, how do I know what to charge? How should I set up my finances?


Robert Green replies:

Setting Your Rates

Regarding your rate structure, the rule is simple: Find out what your competition charges and set your rates 10% lower. By setting your rate a little lower than those already established in the market, you provide an incentive for customers to hire you, the unknown entity, vs. someone who’s been in the business for a while.

You can find out what your competition charges by making some phone calls to temporary agencies, software dealers and others, and by sleuthing the Internet. When you start out on your own, being value-priced will potentially bring in more contacts and more jobs. When I started on my own, my cardinal rule was to always be working, even if my rates were lower. I’ve often said, “It’s better to work at a low salary than to be unemployed at a high one."

After you’ve been on your own for a while and prove yourself, you can begin to raise your rates to match those of your competition. Ultimately, you can build a great reputation and charge premium rates. It won't happen overnight, but it willhappen if you hustle!

Setting Up Your Finances

I highly recommend that you spend a couple hours with an accountant to get a game plan for meeting your tax obligations, insurance and so forth, as these requirements vary widely depending on your location. Accounting notwithstanding, here are a few recommendations that offer consistently good advice for those running their own businesses:

Save. If you aren’t in the habit of saving money, start now. You’ll inevitably experience periods of less work, and you’ll need the savings to weather the dry spells.

Pay your taxes. Believe me when I say the government wants its money and doesn't really care if you’re having a good year or not. I’ve seen way too many independent contractors get in tax trouble because they didn’t save enough to pay their estimated taxes on time.

Get a retirement plan in place. Rules vary from country to country, but U.S. citizens may set up a 403B SEP (Self Employed Pension) plan that allows you to save money while cutting your taxes at the same time. Talk to your accountant about the possibilities and start saving. When you’re on your own, you need to look after your own future because nobody else will. Do a Google search on “SEP IRA” and you’ll see a number of discount brokerage firms that provide low-cost, self-directed SEP accounts.

Save on insurance. U.S. citizens must be more proactive about setting up health insurance plans than those in countries that provide socialized health care, so let me speak to this issue for a moment. Any self-employed U.S. citizen should take a look at Medical IRA accounts (also called HSAs, or health savings accounts), which give you tax benefits, a self-controlled savings account and substantially lower major medical health insurance costs. Do a Google search on “Medical IRA” or visit www.hsainsider.com and you’ll find a number of providers.

Closing Thoughts
Going out on your own isn’t for everyone. To be in business for yourself, you need a strong will to succeed and the willingness to take care of your own finances and plan for your future. If you've always wanted to be self-employed, I encourage you to plan carefully, get your finances in order and go for it. I’ve been in business for myself for 15 years and have enjoyed every minute!

Click here to read Robert Green's first Q&A about establishing self-employment.


About the Author: Robert Green

Robert Green

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