Who’s Ready For A Blind Date?
Happy Tuesday, friend! I thought we’d start today with a super simple calc that is going to help you answer the q:
AM I CHARGING THE RIGHT AMOUNT OF $$$ FOR MY SERVICES?
I'm guessing you've asked yourself this question before because I have too.. it's on my mind a lot A LOT.
It’s a crucial question for a few reasons:
If you don’t charge “enough,” you risk running your biz into the ground because you don’t have enough to cover your operating expenses each month.
If you charge too much, you risk alienating your clients and losing your place in the market, and
You don't want to have to cancel your next trip to Europe (maybe that’s just me).
I’m gonna be 1000% honest and say that determining if you’re charging the right amount of $$ for your services is never straightforward.
There will never be a definitive black/white/yes/no answer, and anyone who claims they can give that to you is not telling you the whole truth.
But as with everything in business, there are always hints, clues, and “canaries in the coal mine” that will tell you whether or not you’re on the right track.
One of my favourite “canaries” involves numbers (shocker haha). It’s a simple calculation called Revenue Per Hour.
You will not find this calc in your QBO and I’m not even sure if it’s widely talked about online, but as a mgt consultant and CEO that gets paid for her ability to zoom out, think strategically and see the big picture - this is a key calc for me and my clients.
And I don’t care if you have a team of 4 or 40, this is also a key calc for you as well, friend. Why?
Well, if your Revenue Per Hour is drastically below your company’s avg charge-out rates, you know you either have an issue with your rates, your employee recoverability, or your billing practices. #notideal
And if you have these sorts of issues, I don’t think I need to tell you the potential impact on your business.
So let’s dive in together because you know I've got you.
In order to calculate your Revenue Per Hour, you need:
Total revenue
Total number of hours worked
Average recoverability rate (let’s assume 75%, as a starting pt - more on this in another email)
Average charge-out rate in your biz
For this example, we’ll take a law firm owned by someone named Rihanna. She earned $600,000 in revenue last year with a team of 3 people (including herself) that worked a total of 5,500hrs. The average recoverability rate is 75% and the average charge-out rate is about $225.
RiRi's company’s Revenue Per Hour is:
Step 1: Total number of hours worked x avg recoverability rate
6,000hrs x 75% = 4,500 recoverable hours
Step 2: Total revenue / recoverable hours
$600,000 / 4,500hrs = $133/hr.
Ta-da! Rihanna's Revenue Per Hour is $133.
Now, if RiRi’s average charge-out rate is $50/hr, she's laughing. She clearly has a v. productive team and can use her extra cash to invest or buy some fashion-y naked dresses. But that’s not the sitch.
Her average charge-out rate is $225/hr so she needs to make some changes.. stat.
What kind of changes, you ask?? Well, I can’t tell you with complete certainty without knowing the ins and outs of Rihanna’s biz, but my guess is that there’s an issue with one of three things - her rates are too low, her billing practices are sh*t, or her employees need training.
As with most biz problems, there’s never a simple answer that will suit every single sitch. If you find yourself asking questions about your rates or other finance-y biz stuff in this post-apocalyptic-inflationary-biz-environment, I have something perfect for you.
Over the next few months, I’m going on a few blind dates - no, not the kind of date that leaves you wishing you were home in your crop top and Lulus watching The Ultimatum 😂 😂. I’m talking about a:
Business Blind Date 💕
If you’re an established biz owner who loves what she’s doing, but would like to get a fresh set of eyes on things, then I would love to set up a Zoom coffee date where we just 'talk shop’.
We can chit chat about how to improve profitability, whether to expand to that second location, or your billing SOP - legit anything business-y that's on your mind. And I promise there won’t be any awkward pauses or questions about who's going to take care of the bill. ;)
You’ll have 30mins to pick the brain of someone who has spent over 13 years advising 6, 7, and 8-figure business owners on how to start, scale and maintain their biz (c’est moi!).
I have 4 of these blind dates avail in July. In order to book your date, you’ll have to fill out this very short form:
And if you don’t grab a spot in July, I’ll be opening up more spots in August! 💕💕💕
Take care and talk soon,
Tanya