Self Employed? How to Effectively Increase Your Hourly Rate

If you work for yourself, your income naturally depends on your hourly rate. Of course, you’d love to make a better hourly wage. But how do you know if you’re being fairly paid?

Here are some tips on when you should (and shouldn’t!) raise your rate.

When You Should Raise Your Rates

1. Your skills or service have improved. If you can provide more value, raising your rates to reflect that is reasonable.

2. Supply and demand have changed for your service. If you’re booking yourself solid and turning away new clients, then you’re in an excellent position to charge more. Simply raise your rate until you’re getting the number of clients you want without having to decline new business.

3. You’re testing a new rate to gain information. Just be sure you have a plan if the higher fees don’t pan out.

4. If you want to reposition yourself. There’s nothing wrong with positioning yourself as a high-end consultant, but be sure you can deliver that type of service. You won’t last long if the quality of your work doesn’t match the prices you’re charging.

When Not to Raise Your Rates

There should always be a legitimate business reason for raising your rates. You might just want to earn more money, but that’s usually not justification for charging your clients more. Before making any rate changes, always look at your skills as well as supply and demand.

Frequently Made Mistakes

1. Never raising your rates. If you never raise your rates, then you’ll eventually be undercharging. Over time, that’s a lot of money that’s not making its way into your pocket.

2. Not testing. New clients are the best place to try out new rates. Keep your old clients at the old rates while you’re testing; you can always bump them up later. If the new hourly charge doesn’t work out, you’ll still have your old clients to fall back on.

3. Raising rates beyond what’s reasonable. If you’re just starting out, you can’t expect to charge the same as an expert. You’ll generally be more effective if you start at the lower end with your price until your client base is sufficient. Then you can start testing higher rates.

4. Changing too frequently. Your clients can’t plan your services into their budget if you’re always changing your rates around.

How to Increase Your Rates

1. Improve your services. You should constantly be trying to add value without significantly increasing your costs. The better your service, the more you should be able to charge.

2. Always over-deliver. Not only do you get great word-of-mouth advertising, you’ll have a much easier time raising your rates when the time comes.

3. Get testimonials. Anytime a client is obviously happy, ask for a testimonial. Put those testimonials on your marketing materials.

4. Truly care about your clients. When your clients can tell how much you care, you’re much more likely to keep their business and get referrals. Their referrals can bring plenty of new clients to test out your new rates.

Ultimately, rates are determined by the marketplace. Your job is to position yourself appropriately within that marketplace and then test higher rates when the time is right.

However, within what the marketplace will bear, the sky is the limit when setting your own rates. This is one of the best parts about working for yourself. Use these tips to raise your income as your expertise becomes more valuable. You deserve it!

Tax Advantages for the Self-Employed

There are some great advantages to being self-employed. Being self-employed allows for plenty of opportunities to minimize your taxable income by turning expenses you would have even if you weren’t self-employed into tax-deductible business expenses.

This article will give you some of the information you need to dramatically reduce your taxable income with a little work and planning.

Here are some of the great tax deductions that are available to the self-employed

1. Home office. This deduction is not the simplest one to pull-off. Fortunately, it is largely on the honor system; however, you should be prepared to defend it in the case of an audit. It is a deduction that is commonly attacked by the IRS because the requirements are difficult for many to maintain.

* Basically, any square footage that is used both regularly and exclusively for your business is tax deductible. This would include that portion of your home’s rent / mortgage, property taxes, insurance, utilities and home maintenance. So if your office is 20% of your home’s square footage, you could deduct 20% of all of those expenses.

2. Health insurance premiums. While this is technically a personal deduction, it is only available to the self-employed. In a nutshell, if you’re self-employed and not eligible to enroll in your spouse’s health plan, you can deduct your premiums from your income. This would include health, dental and long-term care insurance.

* This also applies to premiums paid for your spouse and dependants.

3. Automobile. This is a nice deduction that can really add up. You have 2 options available:

* Mileage method: In this case, you would simply keep track of the number of miles you drive for business related purposes. Then simply multiply the number of miles by the mileage rate provided by the IRS.

* Actual Expense method: You will have to determine the percentage of your mileage that was spent on business and then multiply that percentage by the total expenses related to your automobile. This would include, gas, repairs, oil changes, and more.

* Which method is best? The one that gives you the greatest deduction is best. In general, if you have an inexpensive car or a car that is paid off, then the mileage method is best. Otherwise, the actual expense method is usually the best.

4. Entertainment and meals. This expense is only deductible at 50%, but includes things like tickets to sporting events and the cost of a round of golf. You must be with a client or business partner and discuss some business, but this deduction can be used frequently with a little planning.

5. Self-Employed retirement plans. Contributions to self-employed retirement plans are tax deductible. This include retirement vehicles such as SEP-IRAs, solo 401(k)s, Keogh plans, and SIMPLE IRAs. In 2010, you could contribute up to 20% of your net income plus $16,500 to a solo 401(k). Based on the maximum allowable net income, that totals over $49,000 of contributions!

* It really pays to be self-employed when it comes to retirement deductions. Be sure you’re taking full advantage of your opportunities!

Being self-employed isn’t just about freedom from your boss and someone else’s time clock. It’s also about more freedom from the IRS. While this freedom isn’t complete, there are tax laws in place that really offer significant advantages to the self-employed.

Let the IRS help pay for your housing, car, food, entertainment, insurance, and retirement! It can take a little foresight and planning to really reap the benefits, but the benefits are certainly there.