View Full Version : How Much Should I Charge For My Services?

Brian Hannigan
05-10-2010, 12:15 PM
How Much Should I Charge For My Services?

Wondering “how much should I charge” is probably the number one question asked by home inspectors. Unfortunately very few inspectors actually take the time to research and figure this answer out on their own, so they take the easy road (a road that often leads to disaster) by simple charging about what other inspectors in their area charge. This trickle down effect of poor pricing has plagued the inspection industry from its inception and continues today.

Individuals who provide a service rather than selling a physical product can be paid in different ways, including a fixed fee for an entire project or payment by the hour. However you are paid, you need to determine how much to charge per hour. This is true even if you're paid a fixed fee for an entire project like most inspectors are. To determine the amount of a fixed fee, you must estimate how many hours the job will take and multiply the total by your hourly rate, then add your expenses. Figuring out that hourly rate is the key.

Many of even the most experienced inspectors in the business have been caught in a financial rut because they have not properly and/or accurately accounted for their time and expenses and this has caused a trickle down effect to all of the new inspectors in the business. That is because the second factor to pricing is being competitive in your marketplace. If you're just starting out, you may have no idea what you can or should charge and all too often new inspectors base their fees solely on the marketplace without taking into consideration the real cost of doing business and the time they will need to put into it.

Calculate an hourly rate based on expenses:
Business schools teach a standard formula for determining an hourly rate: Add together your labor and overhead costs, add the profit you want the company to earn, then divide the total by your hours worked. This is the minimum you must charge to pay your expenses, pay yourself a salary and earn a profit. Depending on market conditions, you may be able to charge more for your services -- or you might have to get by on less by cutting expenses, but you can only cut so much before you are losing money on each inspection. An important factor is to work a reasonable amount of hours so you still have a quality of life. It is important to check how much you (not the company) are earning per hour. To determine how much your labor is worth, pick a figure for your annual salary. This salary must be enough to cover your personal life/expenses. You must take into consideration things like mortgage or rent, food, savings accounts, children’s education, etc. Next, compute your annual overhead. Overhead includes all the costs you incur to do business. These are just a few examples but the list is quite long:

• Insurance • Office supplies • Report software/hardware • Office equipment • Clerical help • Travel and vehicle expenses
• Association memberships • Legal and accounting fees • Advertising and marketing • Continuing education

Overhead also includes the cost of your fringe benefits such as medical insurance, disability insurance and retirement funds. Also included in the overhead, your income and self-employment taxes.

If you're just starting out, you'll have to estimate some of these expenses or ask other inspectors what they pay in overhead, then use those amounts in your calculations until you can track your real expenses.

You're also entitled to earn a profit over and above your labor and overhead expenses. Your salary does not count as profit; it's one of the costs of doing business. Profit is the reward you get for taking the risks involved in being in business for yourself. It also provides money to expand and develop your business. Profit is usually expressed as a percentage of total costs. There is no standard profit percentage, but an 8% to 15% profit is a common goal.

Finally, you need to determine how many hours you'll work and get paid for during the year. You'll probably spend at least 35% to 50% of your time on tasks that you can't bill to clients, such as office work, driving, marketing your services and education. This means you'll likely have only 950 to 1,250 hours for which you can get paid each year if you still want that two-week vacation, some holidays, two days off a week and you attend an educational conference or two.

Example: A self-employed inspector wants to earn a $65,000 salary. He estimates that his annual overhead will be about $52,000 per year. He wants to earn a 10% profit and estimates he'll have 950 billable hours each year. The hourly rate is figured as follows:

· Salary and overhead together: $65,000 + $52,000 = $117,000
· Multiply this total by a 10% profit margin and add the amount to the salary and overhead:
$117,000 x 10% = $11,700; $117,000 + $11,700 = $128,700
· Divides the total by the annual billable hours: $128,700 ÷ 950 = $135.47/hour.

This example calculates an hourly rate around $135.00. This is only an example. You need to work out your actual numbers and that is what the Cost Of Business program will help you do.

Investigate the marketplace:
You may discover that your ideal hourly rate is higher than what other inspectors are charging in your area. That is usually the case because very few inspectors have thought like business professionals and calculated their fee schedule before setting out.

Don't be afraid to ask for more than others. You need to charge what you need to earn to stay in business and earn a profit. Lowballing your fees won't necessarily get you business, but there is a good chance it will put you out of business. Many potential clients believe they get what they pay for and are willing to pay more for quality. You need to be fair to your clients but you also need to be fair to yourself. If you can not charge enough to cover your expenses (your salary, retirement and disability insurance included) then there is a strong possibility your business may fail. Over time, you should be able to find a fee structure and marketing program that enables you to get enough work while adequately compensating yourself for the services you provide. Properly calculating your fee schedule is one of the most important things you can do for your business and to stay in business.

When marketing, remember to sell your qualifications and experience, not your price.

For software that will calculate your fee schedule for you, go to: http://www.CostOfBusiness.com (http://www.CostOfBusiness.com)

About the author: Brian Hannigan developed the Cost Of Business program to help the inspection community. In business since 1997, Brian has helped inspectors, associations and schools succeed with professional web site development, SEO, and hosting. His site InspectionNews.net is home to over 13,000 inspectors throughout the US, Canada and around the world. He is the Director of Internet Marketing for The ASHI School & Casey, O’Malley Associates and travels around the county giving lectures on the Cost Of Business. Please contact Brian if you would like the Cost Of Business presentation at your chapter, conference or school.

Brian Hannigan
Hann Tech Marketing Links
Helping Inspectors $ucceed Since 1997TM

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