How do you decide on a fee for your training that won't undervalue your services or make the client run a mile? Peter Mayes tackles the age-old conundrum.
A common question on TrainingZone.co.uk's Any Answers forum is;
"How much should I charge for my training?"
This question suggests one of two things:
- The individual is, or is considering becoming, a freelance trainer and is doing some market and competitor research; this is good and not that common
- The individual is a freelance trainer and has entered the market with little idea about what they should be charging; this is bad but all too common
There are two fundamental principles on which you will charge your clients: your financial requirement, and the value your clients get from your service.
Based on the principle that training as an independent is your primary source of income, the reward you get for your training-related services must cover all your personal and business needs and necessities.
On the assumption that you are going to generate your income from fee-earning days delivering training, rather than selling a training-related product, the calculation to determine your rate is quite simple. The rate you charge is equal to your personal financial requirement plus your business financial requirement divided by the number of fee earning days. To put this as a formula:
CRT = (DDI + RPE) + (RBE + PFT)/ CHD
CRT: Chargeable rate
DDI: Desired personal disposable income (holidays, leisure, gifts, etc)
RPE: Required personal committed expenditure (mortgage, food, bills, etc)
RBE: Required business expenditure (office, consumables, transport, marketing etc)
PFT: Profit (the magic reward that you get over and above what you need to earn)
CHD: Chargeable days
Profit is often a taboo subject but must be considered explicitly within your deliberations. You should carry a profit margin for re-investment, the cost of continuing professional development, research into new markets and other speculatory activities that may or may not generate revenue. And then there are the economic downturns, enforced absences and duvet days that previous profits wisely captured can lessen the impact of.
To omit profit risks stagnation of your business. When times get hard, perhaps during a recession, you may wish to negotiate down your profit margins, but you should not negotiate away your operating costs; to do so is a sure way to failure.
CHD (the number of chargeable days is quite a dilemma for many entering the market) can be deduced quite easily and the following explanation will cover many freelance trainers who work within both the private and public sectors.
- There are 365 days in the year but a lot of them cannot be used for fee earning days
- There are 104 days that are weekends (you do want to see your family)
- There are also about 15 days that are bank holidays;
And of course you would like to have a couple of holidays a year
That leaves you with around 220 potential fee-earning days. Within those 220 days, you need to administer your business: make phone calls, do your accounts, write letters, update your website and do general unproductive, boring office 'stuff'.
Business administration, let us say, takes an average three days per month. And then there is your CPD; you do want to be a professional up-to-date trainer? This can easily take up another day per month. After all this frenetic activity and not yet having engaged with any attendees on a training course, you have no more than 190 potential fee earning days left.
Going to networking events, conferences, exhibitions etc, all take up days and mostly days that you could be earning fees. Then there are the meetings with purchasers to present and negotiate contracts. Talking conservatively this is going to use up another 30 days per year, potentially more.
You now have at best; 160 potential fee-earning days, but we are not quite finished. Of these you will have to research and write material and/or do preparation work prior to running a workshop or programme. And there will be the occasions where you have to travel. At worst this reduces by one third, the number of potential fee earning days left. The result is that at best, you need to generate all of your required revenue in 100 or so fee earning days.
So based on the above formula
DDI £10,000 + RPE £20,000 + RBE £25,000 + PFT £10,000 / CCH 100 = CRT £650/day.
Granted this is a simplistic and formulaic scenario and the figures can change depending on circumstances, but it is something that all trainers must consider as part of their business planning process, preferably before they go freelance.
The above is a baseline of your financial requirement to exist. But what about the Holy Grail in the service sector where the rewards for supplying the service far exceed the costs of providing the service? This is the mystic art of quantifying the value of a service and charging accordingly. Not quite so easy.
In the above cost analysis the fee of say £650 per day does not include what value you believe you can bring to a client; it is purely a baseline cost of providing a service.
Let us say that you have been contacted by the sales director of a pharmaceutical company who wants to increase the effectiveness of their key sales team. How much are you going to charge? Too much and they are going to run a mile; too little and they are not going to take you seriously. If you can prove, through a return on investment (ROI) or other evaluation mechanism that your proposal will generate £100,000 in additional revenue; then what is your training worth to that client?
I pose this question because discussion takes place within the training community, by both trainers and purchasers of training, as to why one trainer charges £500 per day and another charge £2,000 - for apparently the same training. Often the simple answer is that the latter trainer understands and, through evaluation, can prove the benefit and value of their training to the client to a point that the client becomes compelled to invest. The trainer that cannot identify and articulate the value of what they do for their client is likely (and ought) to lose out.
So, for you to move towards making your training pay for both you and your client, work out what benefits the client will gain from accepting your proposal and include an evaluation methodology to back up your claims. Of course doing this is outside the remit of this article but there are plenty of contributors to TrainingZone.co.uk that are experts in this field.
One significant variable to add to determining your rate is your business model; will it be direct work or associate work or more likely a combination of both?
Associate work is where trainers sign up with a small number of large training providers who ring them up on a regular basis (hopefully) offering them blocks of days of work at a time, sometimes at relatively short notice. Examples of contracts that these training companies hold are the public sector framework agreements for large scale long-term training. Much of this work is undertaken on an 'as needed' basis and the flexibility of an associate / freelance workforce for these contracts is advantageous.
So, you have decided what revenue you want to generate, the number of days you have to generate it and finally the business model you are going to adopt, you now know how much to charge. If you fail to set your rates at a sustainable level then you run the risk of going broke. You will also risk being grouped with the jobbing and hobby trainers who undermine the perception that training is a serious business if not a profession. 'Hobby’ or ‘jobbing’ trainers are individuals who train to supplement a main income derived from other means. Whist some of these jobbing and hobby trainers are excellent, some are not.
There is a caveat to this: I appreciate from talking to providers that within certain sectors such as hospitality, care and IT, rates are restricted by the perceived value derived from any learning. How much benefit can be achieved from becoming more productive in catering, domiciliary care or using a spreadsheet? And that does not include the regulatory training required in order to operate in the first place. As a result the rates in these sectors are restricted, and some trainers will not necessarily be a full time business, or if they are, may only be operating through economies of scale. As such the above calculations may not fit.
So you want to earn £100,000 a year as a management trainer; you now know what you need to do. Good luck.
Peter Mayes is the founder and chief executive of TrainerBase, the association for learning practitioners, which helps trainers find business and business find trainers. For more information, go to www.trainerbase.co.uk
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