What should I charge hourly when I go out on my own?

Here’s a great question from a podcast listener:

“I am currently starting a small business building furniture and have a goal to replace my income in 18 months so I can work from home and spend more time with my two young children. My question to you is, I currently have a day job that makes $24/hour and would like to know if I should use that same rate when calculating my time and cost for a product or should I start out at something lower like $15 till I gain more of a following? Kindest Regards,”  Jessica

Okay, Jessica let’s just start with the math. $24/hr at 40 hours is $960 a week or $50,000 a year.  So let’s say you want to continue to make $1000 a week.  As an entrepreneur you will never be doing what you do best for 40 hours.  There are supplies to order, sales calls to be made, emails to be answered, financial records to be handled, and other administrative duties that need to be covered.  You should base your projections on 20-25 hours a week of actually building furniture.  So to keep at your current income you should think in terms of generating $50 an hour when you’ve actually creating something to sell.        

There’s a lot of “furniture” that will never justify that kind of compensation.  If you’re going to make tables or chairs that someone can get at IKEA – you’ll never be able to compete.  But if you make one-of-a-kind amazing pieces, then that’s not unreasonable.  What makes you remarkable?  What kind of piece are you going to make that a buyer could not find anywhere else in the world?

Don’t think in terms of hourly – think in terms of completed project. People are not buying your time – they are buying your unique talent and your years of experience in developing that talent.

You may have seen the carved eagle we call Aristotle I have on the approach to my office.  Terry Brasher came out, set up her scaffolding on Monday morning and completed that amazing piece on Tuesday evening.  Essentially two days.  We did not discuss price in advance as she really didn’t know how complicated it would be.  And that was fine – I already knew I was going to pay her whatever she thought was reasonable.  I certainly didn’t keep track of hours.  I was simply looking for a completed masterpiece. 

When she was finished I asked what I owed her, and she suggested $1000, to which I readily agreed.  If we look at the time, that’s 16 hours which would be $62.50 an hour.  But the hours were not the issue – the completed project was the focus.  And frankly, I thought that was a great deal for what I got.  Basically she just carves wood – if she sat on the square in Franklin on Saturday morning carving wooden whistles or making bird houses she might make $5 an hour.  But in creating artistic masterpieces she separates herself from wood carvers or furniture builders. 

Dayton Brown has done some work for me as well.  He’s a furniture builder. But his pieces are stunning works of art – not just functional furniture.  The kind you show to your friends and hand down to your children. 

My advice – Don’t think lower – think higher.  Then create “furniture” that is remarkable and you can increase your income.