When asked that question, a wise friend always responded, ???I don??t know. What size is your thumb??? I can tell you, from more than 30 years advising business owners, that rules of thumb rarely work well although they can be useful to get a ???ballpark?? answer. I can also tell you that few of those asking were deterred by my doubtful response to their ???rule of thumb?? question. The most frequent rule of thumb questions have to do with pricing. Entrepreneurs want a quick and easy way to set prices for their products or services. They often decline to set prices by thinking through such parameters as costs, competition, value, and profit. They want a quick answer. Here is the ballpark answer I now give to those selling services. Take the hourly wage, including benefits and payroll taxes, of the employee providing the service and multiply by three to four to determine a reasonable hourly billing range. If you??re the ???employee?? providing the service, use your desired hourly income as the ???wage?? and multiply by three to four. Why the range? Because it usually proves adequate to cover overhead, loan payments, taxes, and profit. It ignores the special value that you may deliver that justifies a higher rate. It almost never results in a rate that is too high. Oh, it may be more than your competitor charges or it may be more than your client wants to pay, but a lower rate runs the risk of not covering all those costs I mentioned earlier. If your fee is resisted, it??s up to you to lower your costs or justify your rate. I??d prefer that you take a bit longer to think through all the considerations, but if you really want a rule of thumb, try this one. Let me know how it works.
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