When you operate a service-providing small business, one of the first things you need to do is determine your hourly rate. This can be a scary proposition, since charging too little means you’re not making what you’re worth and charging too much may price you out of the market. Luckily, there are guidelines that will help you decide how much to charge per hour.
Compare to a job
The first question to ask yourself when setting your prices is how much you would make in your industry as an employee. Next, consider that when you freelance, you are responsible for paying your own vacation and sick days, Bituach Leumi and pension. Your hourly rate must reflect these extra expenses.
Accepted wisdom in Israel is that you need to charge the hourly rate you would get as an employee multiplied by 1.4.
If you have to rent space, pay another worker or purchase items, add these to the amount you charge as well.
The going rate
The truth is that the going rate is a bit of a misnomer, because there will always be service providers who are more expensive and those that will be less expensive. Sometimes this will be because they are more experienced or operate in a location or industry where the market is different. But often it is just because this is what they have decided to charge. However, it’s still a good idea to find out what others are charging so you can get an idea of how to set your prices.
Start by asking people in the industry how much they charge per hour. Not everyone will want to provide you with this information, but Israelis tend to be fairly forthcoming when discussing money and you only need a few to get an idea of the range.
You can also ask people in your target market what they would be willing to pay for the service you are providing. If they have already used this particular service, they are likely more knowledgeable on how much it should cost. For instance, someone might tell you that they previously worked with a translator who charged a certain amount, but they would be willing to pay more for someone more experienced. Or you might find out that they felt they were overcharged by the translator they worked with and would pay less the second time around.
Now that you know what the range is, you can determine your price. If you’re just starting out, you may want to position yourself on the lower end, but if you have lots of experience, you should choose a price that’s higher.
Your rate is less important than your work
It’s important to remember that when you’re the best fit for a client, they will be much less concerned about your pricing. Say a client is looking for a graphic designer with a specific style and you have that exact touch. In your initial phone call, there’s an immediate click, where you each have a deep understanding of the other. You quote your price and it’s slightly more expensive than a different designer they spoke to. But that designer didn’t really get them and their style wasn’t quite what they were looking for. What are the chances that the client will choose to work with the less expensive designer?
Another thing to remember is that if a client quibbles about your price, they are not the right client for you. Even if they are convinced to work with you, they will never be satisfied because they think that they are overpaying. The right client is the one who thinks you are worth what you are charging and appreciates the skills and knowledge you bring to the table.
Consider a retainer
It might be time to dump the hourly rate entirely! If you have clients who want you to be available to complete tasks and don’t really care how long it takes you, you can charge them a monthly retainer. This means that they pay you the same amount each month and it covers all the work done during that month. There might be months where you get paid for doing very little and other months where you work for every shekel and then some.
The advantage of this system is that you have a steadier income. Clients like it because it makes paying you easier and they know you are available to them whenever necessary. Of course, this opens you up to situations where you might be taken advantage of and boundaries have to be very clear so that doesn’t happen.
Negotiating
Many Israelis have a “shuk mentality” which they bring to business transactions. They want to feel like they are getting a good deal and will negotiate until they get it. You can deal with this in a number of ways:
- Refuse to negotiate and only work with clients who are prepared to pay the rate you ask for
- Always quote slightly higher than you want and negotiate down to the amount you really want
- Quote a price that includes a built-in discount and let the client know they are getting the lower price because they are a friend of a friend, you have a special promotion this month, you really like them etc.
Rates are not static
The rate you charge when you start out should not be the same rate you charge 10 years down the line. Raise your prices periodically, as you gain more experience and provide a higher quality service. Prices in the industry also tend to rise, so keep your finger on the pulse and update your own prices accordingly.
You can either raise your prices for all your clients, or raise it for new clients and allow pre-existing clients to continue paying the old rate, at least for a while. When raising prices for existing clients, unapologetically announce that your rates have gone up. If they are loyal, satisfied customers, they will likely accept the new rates without issue.
You can also increase your income by becoming more efficient. If it used to take you an hour to write a 500 word article, you can reduce that to half an hour. You can do that by improving your own skills, using AI to help you or by more effective task management. Cutting down on time for admin tasks, keeping organized records and figuring out the best times of day to accomplish certain jobs can speed up your processes and bring in more income.
There are only 24 hours in a day
One of the issues with an hourly rate is that you’re limited in how much you can work. There are, after all, only 24 hours in a day and you have to sleep sometime. Of course, you can outsource work, but your outsourcers are also only able to work a certain amount of hours. The most efficient ways to increase your income are to increase your rates or switch to a retainer model.
For more information on running a small business in Israel, see Business Culture in Israel.