How much should you charge?

It’s the start of a fresh year, and some Hypergrid Business readers are finally taking the plunge and starting their virtual world businesses.

The first question many of them ask is, “I much should I charge?”

The following are some rules of thumb.

How much to charge for region rentals

If you’re setting up an OpenSim hosting company or a new grid, this is an easy question to answer.

Just check our listing of OpenSim hosting providers and figure out where you want to position yourself. Are you a high-end provider, offering a premium service for a premium price? Are you in the middle of the pack? Or you you have a way to offer low-cost services as a result of automation or contract labor in low-cost regions of the world?

If you’re going for low-cost, you should be under $25 a month for a 15,000-prim, Second Life-style region. Medium priced would be between $25 and $50. On the high end, $50 and up.

Once you’ve settled on a price, add up your expenses, including your own labor, as well as marketing and advertising costs. If you can’t find a way to at least break even, go back to the drawing board. Don’t expect to make it up on quantity. If you’re losing money on a single region, you’re going to lose even more money on a hundred regions.

And when calculating your own labor, be reasonable. Don’t set your hourly rate so low that McDonalds would be a step up. Otherwise, you’ll burn out quickly — and slinging burgers will sound better each passing day.

You might want to rent some regions from your direct competitors and check out what features and services they offer for the price. Can you match it? Can you find some areas for improvement?

How much to charge for consulting services

Most people, when they first set up consulting businesses, under price themselves — and then find it difficult to raise their rates later. Don’t be that guy. Or gal.

Here’s the basic formula for deciding on how much to charge:

First, decide what annual salary you deserve. Deep down, you know what it is. You know if you’re a $30,000-a-year person, or a $60,000-a-year person, or a $90,000-a-year person. If you set your rates lower, or higher, than you believe you deserve, then your customers will pick up on it. They might not be able to put their finger on it, but they’ll get the sense that you’re begrudging the work you do for them, or that you’re padding the hours — and they won’t feel comfortable working with you. Give yourself a reasonable salary.

Once you know what your salary should be, divide it by 2,000 — the number of hours in a typical year, if you take two weeks of vacation — and multiply it by three.

Yes, multiply it by three. That’s because as a consultant, you’re responsible for paying all of your own taxes, covering all of your own benefits, and doing all of your own accounting, bookkeeping, marketing, and sales. Don’t forget that you’ll only be spending about a third of your time on actual work for clients. The rest of the time will be spent on administration and sales. And if you skimp on administration — forget to send out or follow-up on invoices, for example, or paying your quarterly taxes, your company will be in trouble. And if you skimp on marketing and sales, you won’t have any work coming in at all.

You can hire people to help you with administration and marketing, but you’ll still have to pay them out of your hourly rate.

Based on these calculations, the absolute minimum you should be charging is $20 an hour. And, if you do, you should be able to explain why your rates are low. Maybe you’re a student, for example, and you plan to raise your rates once you graduate. Or you live in a very low-cost country.

A more reasonable rate is $50 an hour, which works out to take-home pay of about $33,000 a year. That’s not a bad starting salary for someone technically qualified to do the work, but new to the virtual world consulting field.

You might argue that if you bill $50 a hour, and work 40 hours a week, your take-home pay will be a lot higher, that you’ll only be spending a quarter or so on taxes, leaving you with $75,000. I have to remind you that you don’t bill clients for the time you spend drafting and revising contracts, sending out invoices and invoice reminders, and doing all your marketing and sales work. At most, you’ll be billing 20 hours a week at most.

And if you fall into the trap of putting in lots of billable hours for several weeks at a time, and skipping your administration and marketing duties, you’ll fall into the most common traps that freelancers face — “feast or famine.” This is what happens when you get a large project and spend all your time on it, then the project comes to an end and you realize you have no more work coming in and you panic and market like crazy and take the first gig that comes along because otherwise you’ll be sitting around and not doing any billable work at all.

Freelancers and consultants who do this wind up going into a downward pricing spiral, since they’ll take any work offered, even if doesn’t meet their minimum rate requirements, just to stay busy.

Those who keep a regular schedule instead, and market continuously, can afford to turn down clients, and pick the projects that are the best possible fit for them. The business they turn down, they refer out to other freelancers, who’ll be grateful to get the work because they didn’t budget their time and are always in a state of panic.

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maria@hypergridbusiness.com'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China.

  • hack13

    I can somewhat agree to this, it took us a while to find our perfect price point, but I feel as well as many of Zetamex’s clients that we are defiantly not low-end for the support and quality of hosting we provide.

    But we are only able to offer such deals and pricing the way we do by signing contracts and agreements with different datacenters, and service providers allowing us to get mass quantities of services at lower costs, allowing us to keep our business going strong and offer some of the best deals.

    My tips for virtual world providers, are to work outside the box of standard use cases, and think new and inventive. It is the best way to score new business and keep it reoccurring into your bank account, and keeping yourself on the pace of a growing company.

    Lastly, don’t like other people bully you into retorting about who your providers are, where you get your services or servers. They might feel confidant in making you come forward with this information, but honestly it is how some people conceal their income. Big companies don’t always shared their secrets of who hosts their site, or where they sit their servers, its on a need to know basis. Just don’t get bullied into releasing your secrets.

    • Timothy,

      All professional hosting companies provide details about where they host their servers and the type of servers they use. It shows that they aren’t using sub-par hardware running in sub-par datacenters. Good hosting providers are proud of these things and make this information easy to find on their website. This is so prevalent that you can use it as a quick heuristic to determine whether or not the hosting provider you’re considering is a real business you can trust.

      There isn’t any cloak and dagger component in hosting, it’s a commodity service. You don’t have to share the special deals you’ve made with any datacenter but not telling your customers exactly where their servers will be located is shady. There is absolutely no reason to do so unless you have something to hide from them.

      If you offer no value on top of the datacenter you’re using then people should look somewhere else for a hosting provider. If you do offer value then there is no reason to hide the identity of the datacenter you’re using from your potential customers. Are you so afraid they’ll bypass you and use the datacenter without you getting your cut? If you offer sufficient value add most of your customers will prefer paying you your fees on top of what they can get directly from the datacenter.

      Advising would be service providers to look shady to their potential customers is very bad advise. People who want to get business should act transparently and give their customers full information about the what, where, and how the service they will be paying for will be provided.

      • childish

        You are one of the most childish grid owners and your ass really does show when you write.

        • [email protected]

          a friend of mine has been working on a system that offers region on demands thats very close to what kitely offers thru the cloud we are hopeful they will able to donate that code if all goes well by the end of the year as a gift to go open simulater developers, he is a computer scientist that is contracted thru oracle with several colleges helping him also, we all will be on an equal footing again then not held to one grids proprietary advantages and looked down upon by this e-gangster ‘n’ motley crew

          • childish

            This is really good news because I think we are all tired of llans childish behavior. I’d personally like to see him thrown off the map. /me keeps fingers crossed.

    • Guest

      I agree with Ilan Tochner. If it’s bypass your worried about, then they don’t really want your services anyways. they just want a cheap server with no top ranked support. let them go if that is the case. If they want servers with top quality Knowledgeable Opensim service, they will know that your the place to go.

      • hack13

        I don’t get your comment, when we have received such high marks from our clients about our amazing support. I don’t know where you got your facts from.

        Take a look, we receive the most positive feed back out of all the 2013 opensim hosting providers.

        • Guest

          Obviously you didn’t get it, as you think I’m bashing you. read it again, then you will see that I stated that you have “top quality Knowledgeable Opensim service”. I just agreed with Ilan that subterfuge about your server farm is not a clear-cut, honest way to do do business.

          • hack13

            I apologize, but we have come open with our server farms.

          • Little people everyhere

            Hack as a long time customer you do a fantastic job!, Now while you do all the hard work for us that allows myself and staff to expand on our customer service while focasing on our inworld resident needs,

            Some advice given would best to avoid any debates with that man it just allows him to get a tv spotlight by filling his ego, besides maria will showcase him in many more articles in the futare while the rest of us are sweept under the rug as she believes kitely and hypergrid is the futare while us commeriel grids will all fail now giving him the chance to showcase his ego will only hurt us little people further, you do a damn good job no matter what kitely says!

        • GUEST TOO,

          Never argue with a fool – they will drag you down to their level, then beat you with experience. Mark Twain

  • “First, decide what annual salary you deserve. Deep down, you know what it is. You know if you’re a $30,000-a-year person, or a $60,000-a-year person, or a $90,000-a-year person. If you set your rates lower, or higher, than you believe you deserve, then your customers will pick up on it. They might not be able to put their finger on it, but they’ll get the sense that you’re begrudging the work you do for them, or that you’re padding the hours — and they won’t feel comfortable working with you. Give yourself a reasonable salary.”

    This is so very important to highlight. And it sure does vary from person to person…mostly depending upon the quality of life they are used to, essentially.

    Many people get along just fine [or at least ok] at that lower end [and even lower] but then others need much more than your high end to maintain that which they want in their lives [not need, we really do not NEED as much as many ppl think they do].

    I used to ask people around me how much they thought was a reasonable annual income…I recall one saying 150k a year. But I knew others for whom that would just not be enough, and others for whom that is like being rich…lol [which it is not, really, but rich for most, for sure].

    So it all depends on the quality of life one is used to, or wishes to obtain, realistically. Many people simply do not have the acumen to get the big bucks [whatever one may call “big bucks”] so a realistic assessment is a good idea, and stick with that, and don’t overreach, as it will cause all sorts of stresses seen in all sorts of ways.

    [wishes I would get off my pontificating roll I am on lately, and knows I will…burps]

    • Minethere — I wouldn’t say it’s so much about the lifestyle that you are used to, but about the WORKSTYLE. When you’re at $90,000, there’s a certain expectation of how you will act with your co-workers, customers, deliverables… that you’ll have more awareness of business requirements, of how to plan a major project, of compliance needs, that you’ll know the mistakes to avoid, and so on. And when you’re at $30,000, you’re more likely to be in a position where someone tells you what to do and you just do it.

      A $30k person in a $90k job might feel like they’re in over their head, a fraud. When you get a big promotion inside an organization, there’s typically some support that goes along with it. You might have a mentor, a boss, a committee, underling, an executive coach — your company wants you to succeed in your new job. Plus, even without all that, there’s all the corporate infrastructure to help you out — “this is how we’ve done things in the past,” contract templates, experienced assistants, legal and accounting departments.

      When you give yourself this kind of promotion, you’re doing it without a safety net. You have to sink or swim on your own. Can you really work at a level three times higher than before? Your customers will certainly expect you to. I recommend raising rates this dramatically only if something really major happens in your life, such as you completing an MBA, for example. Otherwise, set a reasonable rate increase schedule, doing an annual review of yourself and giving yourself a reasonable rate increase based on your accomplishments. Hiring staff is also a good opportunity to increase your rates a bit, since you’ll be able to focus more on the high-value work that you’re good at, while delegating some of the administration tasks to a lower-paid employee.

      • Well, much of this is relative, was kinda part of my point. As well, if one is self-employed as opposed to be an employee, this makes a major difference.

        I still vaguely remember moving from Corporate society to self-employed…and never looked back, tho I used to love working in the Corporate world.

        It depends a lot, of course, on the type of business also. I have known people whose profit margins are so large they can give out lavish gifts and parties for their employees, take large bonuses, and have a merry old time.

        Then others who have to watch how every little cent is spent.

        I seem to recall, and also think I am misremembering, and don’t feel like looking it up, that a business should shoot for a 40% profit over 60% CODB, roughly…tho that would depend on the business…feel free to correct me.

  • money is important but focusing on money will probably never bring about a viable and long lasting OpenSim business (or any other business). i realise that the name of this post is “how much to charge” . . .

    • I agree with you. The primary focus should be on helping customers. I think, by setting a reasonable rate, and using that as a cut-off for making decisions, you can reduce the amount of time you obsess about this aspect of your business, and focus more on improving your quality of work — both production, administrative, and marketing.

      But don’t let customers guilt-trip you into working below your rates. Instead, refer them to someone who is HAPPY working at those lower rates.

      If it’s a really good cause you believe in, set aside some time for pro-bono work. This work can be purely personal, to help the world, or can be part of your marketing strategy, but pick your pro bono projects well, so that you don’t get burned out.

      I personally do volunteer writing for metaverse-related stuff (which I am a passionate believer about!) and for some causes I believe in (freedom of the press around the world, our local town library, other local community groups). But if someone asks me to do something for free that doesn’t fall into my two pro-bono categories, or that takes more time than I have set aside for this work, I put them in touch with someone else who can help, instead.

      • you are totally spot on when it comes to valuing yourself – most people go way too low (at my day job, i get billed out at $1250 per 6 hour day!!! i sure wish i could get that kind of $$$)

  • Samantha Atkins

    I was doing virtual world consulting I would attempt to fix price the project rather than going hourly. If I used my standard salary as a software engineer and the above formula then I would be billing at over $200/hr. Not that easy to get even in fields I have decades of experience in. What I might do instead is offer VW consulting in areas I am comfortable in at my normal software consulting rate and only do these things as a part time side gig until I had more of a name.