Why you need to set a minimum rate (and then an ideal one) | LSP.expert

Why you need to set a minimum rate (and then an ideal one)


There's no doubt that deciding your rate is tricky. There are many factors to take into consideration, and anyway, having one single rate for all clients and all projects is not a good idea.

Why? Because no two clients or projects are the same.

But, to ensure you're earning enough to cover expenses, put money aside for emergencies (hello, unexpected tax bill!) and plan for the future, deciding on a minimum rate is crucial.

Up close and personal (with your bank statements)

Working out your minimum rate isn't complicated, but it does take time. First we're going to get personal.

Action Resources Notes
Total all of your personal bills and expenses per month Your personal bank statements for the last three months (so that you account for quarterly, bi-annually and annual bills and expenses.)

Pen and paper

Calculator
  1. Ensure to include for one-off payments, like holidays, gifts and home improvement purchases, then pro-rate them to get the amount you'll need each month to cover these.
  2. Don't forget to include some "emergency" savings, for when the card breaks down or the boiler blows up.

Now it's time for the fun part - deciding on your salary goal. No, this isn't just the result of all your bills and expenses added together, it's the salary you want to earn each month.

Yes, it might feel greedy or fanciful at the moment, but it's really important that you start to set income goals that aren't just about your needs, they're about your goals and aspirations too.

How about you start by adding 5% on top of the total you got from your expenses and bills?

Business basics

Next we'll look at your business expenses and bills. These are the expenses you need to consider so that your business can operate normally. You know, business as usual. It's not too different from Step 1.

Action Resources Notes
  1. Total all of your business bills and expenses per month
Your personal bank statements for the last three months (so that you account for quarterly, bi-annually and annual bills and expenses.)

Pen and paper

Calculator
  1. Add monthly amount to cover tax and profits.
Pen and paper

Calculator
Tip: Save a percentage of each payment you receive to go towards tax and profit, e.g. 15% for tax and 5% for profit

Putting it all together

Each month, your revenue aim is to cover the following:

  1. Total monthly expenses (that's your salary goal + total business bills & expenses)
  2. Plus 15% for tax (or relevant figure for your country)
  3. Plus 5% for profit

The figure you arrive at is your monthly revenue goal.

Billable blues?

Of course, working out your own salary and the money that's required for "business as usual" isn't the whole story. There's the small matter of figuring out what all these figures mean in terms of the rates you're charging your clients. To do this you need to know how much time you spend on non-billable hours.

Non-billable work encompasses tasks like marketing, accounting, information gathering and communication, and are a key part of your business. If you're having trouble figuring out whether a task is billable or non-billable, ask yourself this:

"Could I state this item on a client's invoice?"

If the answer is yes, it's billable. If it's no, then it's non-billable.

Corinne McKay has a very comprehensive post on this, which takes you through the steps on calculating billable hours (there's also a great section about it in her book, How To Succeed As A Freelance Translator)

Once you've calculated how many billable hours you have per year, you can divide your monthly revenue goal by the number of working hours you have per month. This figure is your minimum hourly rate. If you charge per word, divide this figure by the number of words you translate in an hour to give you your minimum rate per word. Here's an example:

3000 ÷ 90 = 33
(Monthly revenue goal in €) (Number of working hours/month) (Minimum hourly rate in €)

Knowledge = power

Knowing your minimum rate gives you the power to know which jobs are a "no-thanks" and which are a "yes-please". More importantly, it gives you the confidence to change your circumstances.

If you don't know your minimum rate, and are relying on industry averages (or guesses) to dictate what you charge, then you're much more likely to be pressured into a rate that doesn't suit your circumstances. That's because you don't have any solid financial foundation for your decision making.

Once you have all the necessary information, you can respond with a simple "That's below my minimum rate."

By the way, LSP.expert allows you to define how you want to charge each service for each of your clients, whether that's per hour, per word, per project, or per private jet. If you haven't tried it yet, don't forget there's a 30-day free trial to test that feature (and many others) and see how it helps your business.

Value = even more power

Earlier in the post we talked about setting your salary goal, and this can be intimidating when you're just starting out. We fell in love with this TED Talk from Casey Brown (a value specialist) and we think you'll love it too….it should give you plenty to think about!

Gaining clarity on your finances is always a good idea, but the combination of setting a minimum rate, defining billable work and pinpointing the value you add for your clients will give you the confidence to take the next steps in your business.





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