This started out as a response to a comment and then I thought it might be better as a post in it's own right.
In his comment David Conlisk said:
First off Tim very well done on providing some excellent information on the site. I've just spent my first afternoon as my own boss reading your business start-up advice and it's been excellent (it's called research, not slacking off!)
One question I would ask you about this post is what about market rates? I am going from being a contractor on an hourly rate to being a limited company. I never considered working out a base rate like you've done, instead I spoke to as many people as possible in the marketplace to gauge what the rates are and I price accordingly. Of course this works fine for more corporate clients, but I doubt I could charge smaller companies similar rates. Let's hope I can make a good enough impression on my corporate clients to keep that kind of work coming in!
Keep up the good work,
Thanks for your kind words, I'm glad to hear you found it of use.
In regards market rates, it's one of the oldest debates in the book AFAIK and has a rather unhelpful answer of "You should charge what you feel comfortable charging". I'll try to improve on that a little as it's always hard but in essence it's true. Basically from experience I would keep it as simple as possible, have as few rates as possible for all clients, just make sure you feel you're worth the rate in your own mind.
Although you need to keep an eye on the "market rates", you'll find your rate will determine the type of client you work with. Being the cheapest on the market is not necessarily a good thing. One advantage of offering a freelance service to other development companies is that we get to see what happens when your prices are rock bottom -take it from me, more often than not, it's more hassle than it's worth. When you have someone going el-cheapo all the way you often find they're overly picky about every aspect and require a lot more management time (that's not to say those paying higher rates aren't, I guess you just notice it more).
As long as you're reasonable with your rates, clients who are willing to pay your rates, will use you (they may complain a little but it's unlikely) but at the end you'll both be happy with the work produced. As long as you believe in yourself -and your rates, this will be conveyed to your clients so if you know you're value for money you will be able to justify it to any client (corporate or otherwise). It's up to the client to decide whether you're value for money.
Believe it or not the service industry is not the only industry to set it's fees and then get them negotiated on -Stacey used to work in Debenhams a few years ago, for those of you who don't know what Debenhams is, it's a large department store in the UK, they sell items for a set fee, everyone knows this but regardless of this she still had people trying to negotiate on the fee. Be open to negotiation but don't be silly about it otherwise the client may always expect a discount of that level (so stick to no more than a 10% variation).
Don't worry about having clients not use you because of your rate, as long as you're around the market rate there will be a client for you. At the end of the day, you can't realistically expect to service every prospect that comes through your doors -sometimes you just have to say "sorry that's the price".
I'm not saying charge £1,000ph when the market rate is £10ph as that's just silly but I would say your base rate shouldn't be cheaper than the market rate or more than 3 times the market rate (unless your service really is that good and you're bogged down with work [I did have a link for here about an ?SEO company charging $1,000ph and still being too busy but I can't find it atm], in which case go for it!).
Tip: How do you find out market rates? That's simple, find a couple of companies who offer similar services, to a similar client base who are a similar size to you, call them up and just ask them what their daily rates are. Call 10 or so companies and you should have a few prices to compare :)
Another tip: Always ask for an rough idea of their budget -even if it's just a range, this will give you a good idea of they're realistic or not.
And one more: Don't forget your rates don't need to be fixed. If you find you're too busy, increase your rates a little, if you're too quiet (whereas everyone else is really busy) then you may need to look into how you market your business, your presentation skills and finally possibly reducing your rates.
A word of warning: I would avoid dropping your rate "for the nice client" as the majority of times you'll end up regretting it, either because it gets out of control and you get frustrated because "you're doing them a favour" whereas they feel they just negotiated your service rates down (and so should be getting the same level of service. Remember, it's business, you don't need to do anyone a favour, charge what you feel is fair for your time and you'll always enjoy your work :)
On the flip side of this, if you're lucky enough to get a large corporate, make sure your rate is their market rate as we've lost work for being too cheap (and in my eyes we were already overcharging for the workload).
It's easy to be busy and cheap, but being a busy fool is no way to live!