|Moroccan Olive Seller|
There are a lot of “cost of doing business” calculators (here, for example) and even more advice on the subject. In my experience, they tend to be over-complicated and cost-heavy by design, almost as if they want to discourage you from starting your business. They ask for the total cost of items (like your phone, internet, car, and “home office”) that you might also use in your personal life, driving up the budget, and put unrealistic estimates into the purchase of new equipment, etc. When you’re starting out, don’t buy new equipment. If you don’t own it, rent it. These calculations are guesswork until you have several months of real costs for comparison, making the term “calculator” a bit nonsensical.
If You Don't Own It, Rent It
But there’s also a faulty premise behind the calculator. The idea is that you’ll divide these costs by the number of working days or projects. So if you’re a wedding photographer who expects to shoot 24 weddings in a year, you’ll divide your costs ($40K) by the number of weddings: 24 weddings at $1650 each. The implication is that if you fall behind on the number of weddings, you increase the cost of each one. So if you’ve only shot six weddings in six months, you’ll need to up your rate to $5,000. Which is ridiculous. Not because it's a lot of money, but because your cost of doing business has very little to do with the market rate or what you’re worth.
|Shark skin in Hong Kong Market|
My approach has been simpler. You simply need to know your average monthly expenditure. If that’s $4k, than you need to earn a grand a week, or $250 a day. On average. Which means that you need to bill for the days, weeks—but hopefully not months—that you’re not working. This is essentially a mark-up on your time. A cup of coffee costs around 20 cents, but they’ll charge $1.50 to cover rent, employees, insurance, etc. You’re doing the same. For the time being, my ideal mark-up is 250%. So if the project takes a ($1k) week, I’ll need to charge $2500. That’s my short-term goal. But it’s not what I charged in the beginning. When I first opened shop, if the job took a week, I charged roughly a grand. This meant two things: First, that I was less expensive than my competition; and second, that I would eventually go broke because I wasn’t continuously employed. That’s where my extra working capital comes in. I intentionally planned to underachieve for the first six months. During that time I would prioritize building a client base, portfolio, and skill set—and slowly… slowly build up towards my ideal rate.