How to determine a rate per hour in the service sector. I recommend the formula monthly costs per person divided by 50. Y per person is natural in a consultancy company of six consultants. It's not true all monthly calls of the company to be divided by six because the consultants charge per hour per person. But why to divide by 50 in a work month, they are 168 work hours 21 workdays multiplied by eight hours per day. But why then we do not divide by 168.

And the reason for that is the statistics showing that the best consultants in the world charge as maximum as 32% of Their work time the rest the preparations and other duties they cannot invoice to customers. In an example, that is described in the attached Excel file sheet one hour, we are having total cost per person $3,500 divided by 50 hours. We are getting that this consultant should charge $70 per hour. The approach we just went through is the full cost approach from the previous topic. In the attached Excel file, you have a template looking like this. Where you could change whatever you want, you can change the court the amount of the course you can change the percent your charging, you can change the hours you're charging per month and at the end you will get different minimum rate per hour.

As we discussed, the full cost approach has the disadvantage that it did not take into consideration the market levels. So, we need to define the market rate levels and there are several logical steps to do here. First, we need to investigate all competitive threats in our region for the same service. Okay, when I'm saying oh, I mean about 40 52nd step, we need to define the mold. The statistical mold. mold is the most frequent value data range.

For example, in the range 2336789, the mode is three, the median would be six, but we're interested in the mode. Another row we should apply is the Pareto rule, which in our case means that we should focus on approximately 70 80% of the competitors from our search. We should not bother about all of them, but about the main group of 70 80%. The first step is to get the list of our competitors rates. About 40 of them. The second step is to solve them by value.

The third step would be to find the statistical mode. fourth step is to define rate interval for grouping these competitors. Fifth and the last step is to use graphics graphics, you can find in the attached Excel file sheet graph. On the left side of the Excel template, you will find the 40 competitors rates sorted in increasing order. Even the smallest and the biggest rates are very odd to too far away from the group, it's better to disregard them. You then set a step size value of your choice for grouping the other competitors threats.

In this example, I have chosen As the step size, aim are getting 10 to 15 groups initially use diagram to visualize the result. Here, we can see that the biggest groups are somewhere in the middle of the range, namely groups of competitors, charging 60 and $65 per hour. Applying the idea of the Pareto rule, I have for this moment increased the step size value from five to six in order to combine the two groups into one. In a real consultancy case, I will have increased the initial step size value twice, up to 10. But here, I wanted to keep more segments for the graphic. This template with the graphics is the touch of the symbols file called defined market rates.

The same stuff unlimited. In the graph, we search for concentrations of competitors. They could be in one area, like in this example or in more areas and to use the right intervals within these areas to adjust our initial step size value. Then, after applying the final step size value to our list of 40 competitors rates, we create a diagram with the number of competitors per one step per eight interval. In our case, there are 21 competitors in the step 60 to $65 per hour. Their share is 53% of all competitors and we have reached to the point where our common sense, analytical thinking and diagnostic reasoning are of greatest importance.

We need to define where to position our service which is the best rate interval for it. Different people from one of the same company will come to different conclusions. There are several questions to assist us in taking our decision about in which right interval price segment to position our service. The first question in which segment is the greatest part of our target group customers. If our key customers are with very high income and we are experienced professionals then We should charge the higher rate per hour. If we are young consultants with three to five years of experience, then we should focus on medium income customers and our rates per hour should meet their price criteria through the eyes of the key customers, how different is our service in comparison to that of the competitors?

That is the second tough question to answer. If we are a startup company, we could not answer the question. But if we have survived over a year, then we could and we must ask our customers for honest feedback. The third question is level of competition in our area. 100 competitors in a 500,000 population city is worse than 1000 competitors in 10 million population city. Why?

In the first case, every competitor has only 5000 potential customers on average. In the second case, there are 10,000 potential customers per competitor. In other words, the latter case is with lower competition. price elasticity is the fourth question. Very soon we shall dive into that a lasticity. I mentioned it for the third time