Never Undersell Yourself — How to Work Out Your Walk Away Price
Essential for any freelance or service business.
When it comes to pricing your services as a service business or freelancer, there’s lots of areas you need to take into account — What the market will bear, the value of what you provide, what competitors are charging, and more.
In addition to that though, it’s vital to have a “Walk Away” price — A price that you can’t / won’t go below for a simple reason — If you do, you simply won’t have enough to live on. In other words, it’s a hard, non-negotiable stopping point. Here’s how to work out your walk away price, together with examples. It does take some effort, but it’s worth it.
This is a simplified version of working out your walk away price. It doesn’t take into account what your spouse might earn, other income streams, or taxes outside the basics you might need to pay. That said, it does still provide a useful starting point.
Step 1 — Work out your monthly household costs — How much you need to live on
You will need to calculate exactly how much money you need per month to meet all of your obligations. That includes:
- Mortgage / rent
- Utility costs (electricity, gas, water, broadband, cable etc.)
- Vehicle costs (Gas, tax, insurance, maintenance)
- Loan / credit card repayments
- Food and lifestyle costs (Groceries, going out, clothes, personal care)
- Property costs (Property tax, insurance, maintenance)
- Healthcare costs (Premium payments, dental, doctor visits etc.)
- Other costs (Children, pets, entertainment, student debt etc.)
Look through all your receipts, track your spending, and get a really good idea of your average spending on a monthly basis.
- Low commitment example: Your monthly household costs are around $2,000.
- Medium commitment example: Your monthly household costs are around $3,500.
- High commitment example: Your monthly household costs are around $5,000.
Step 2 — Work out your monthly business costs — How much you spend on your business
You spend money on your freelance business. Look through what you’re spending on that business on a monthly basis. That includes:
- Office rent and maintenance
- Computer software, hosting, and subscriptions (Website hosting, SaaS subscriptions, other services)
- Bank and finance charges for payment (PayPal, wire fees, account fees)
- Marketing and advertising
- Other office costs (Stationery, sundries, hardware etc.)
- Licenses, permits, and professional services (State license, accountancy, lawyer fees etc.)
- Other costs (Exchange rate costs, insurance, bad debts etc.)
Look through all of your business expenses, track your spending and calculate how much you spend running your business every month.
- Low commitment example: Your monthly business costs are around $300.
- Medium commitment example: Your monthly business costs are around $600.
- High commitment example: Your monthly business costs are around $1,200.
Step 3 — Add together the costs from steps 1 and 2
This gives you the total cost, per month, of living and running your business. Now go ahead and add around 30% to that. That’s to cover your tax and unseen expenses.
- Low commitment example: Your monthly combined costs + 30% are around $3,000.
- Medium commitment example: Your monthly combined costs + 30% are around $5,350.
- High commitment example: Your monthly combined costs + 30% are around $8,050.
Step 4 — Calculate how many hours you are going to be able to charge to clients
This is where it gets a little tricky. You need to calculate exactly how many hours you can bill out to clients per month. Now, it won’t be seven hours a day! You’ll have to build in admin, responding to emails, marketing, and all the other tiny things that go with running a freelance business.
A good rule of thumb is to assume you’ll bill around 4 hours a day. Multiply that number by 20 for the total number of hours you will bill a month. (There are an average of 22–23 working days in a month, but you’ll need to take some time off at some point!)
Example: You can bill 80 hours a month.
Step 5 — Divide the figure from step 3 (total cost) with the figure from step 4 (hours billed)
That gives you the minimum you need to charge per hour to cover all of your costs and obligations.
- Low commitment example: Your hourly cost is $3,000 / 80 = $38 .
- Medium commitment example: Your hourly cost is $5,350 / 80 = $67.
- High commitment example: Your hourly cost is $8,050 / 80 = $100.
That is your walk away amount — Earn less than that, and you can’t cover the cost of being in business, paying your taxes, and day to day living.
Step 6 — Build your walk away price into your pricing
Remember that magical figure per hour. Ensure that’s the minimum in all your pricing models. If you charge by the hour, by the word, or by the project, that’s always what it’s going to come back to. Complete time and motion studies so you know how long it takes you to complete project work, and combine that with your walk away price for your project charging floor.
- For example, if you’re a writer, perhaps you can write an average of 500 words an hour.
- Low commitment example: Your per word cost is a minimum of 7.5 cents.
- Medium commitment example: Your per word cost is a minimum of 13 cents.
- High commitment example: Your per word cost is a minimum of 20 cents.
Step 7 — Remember that anything over the walk away price is profit
Once you know your walkaway price, you have the reassurance that anything you earn above it is profit to you. Look at what other freelancers are charging and start to build a good pricing model. Don’t be afraid to have a decent rate that more than covers your walk away price but also gives you enough extra money to:
- Fund your retirement account — That’s vital (and it’s tax deductible — Yay!)
- Build up a finance / emergency budget for slow months.
- Have fun!
If you’ve got any hints or tips of your own, please do share them below. Oh, and please do recommend this by clicking on the little heart icon, so other business owners and freelancers can benefit. If you want to find out more about me, visit my freelance writing website.
I hope you enjoyed this article. If you did, please click the “Applause / Clap” icon to let me and others know. I’d also be delighted if you wanted to follow me, or follow this publication, “Trust Works” — all about working better.