How to set a fee
A common question on many of the networking forums, digests and blogs
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
As a freelance trainer you must not ignore the basic principle that you
are in a commercial business.
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.
The fee formula
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. Do bear in mind that your profit margin
will directly impact on your required business expenditure: HRMC will
want their dues.
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.
Consider:
-
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:
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 may 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 / CHD
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.
Value consideration
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 is plenty of expertise within the membership of the Learning
Practitioners' Association that you might call on as a member.
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
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 to the training company.
These contracts often do not require much if any preparation as the
material will already exist. Much of the non-productive preparation is
undertaken by the training company, so working as an associate means fee
earning days can rise to up to 200. However, rates for associate work
are lower than direct work – often by up to 50%. A rate of £350 per day
is common. When you are considering your business model, balance out the
associate verses direct work and charge accordingly. A word of caution
about the potential of 200 free earning days in a year. A trainer doing
200 days per year is going to get tired; training is not and should not
be considered an easy ride. Good trainers work hard during their fee
earning days and some days can be exhausting.
The rise of the Super Associate
Conventional associate work does not require the trainer to do marketing
and sales, client negotiation, needs analysis, course development and
client liaison; this is all undertaken by the training company. I am
however becoming more aware of large training companies using the
expertise of their associates to undertake pre and post delivery
activities. I do not consider this ‘normal’ associate work; to me this
is the rise of the ‘super associate’ where the arrangement is more that
of a strategic partner. This has significant benefits for all parties;
the client, the training company and the trainer (details of which are
for another article). Suffice to say; this type of work takes time and
potentially reduces the trainers training delivery (fee earning)
capacity. When this happens this type of activity must be charge for.
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 sustainable business
if not a profession.
Sector constraints
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.
If there is anything else you would like to know about what the
Association is doing to benefit its members please feel free to contact us.
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