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.