If you’re a self-employed service provider with one to three main offerings wondering whether the numbers work for you to provide the service you have in mind and bring home the profit you need in the time you have available, then this two-part series is for you.

Last time, we worked out how many clients you can serve as a service provider. We ensured that you’re not going to burnout by accounting for all the time off you want and need, and how much time it actually takes to deliver your various services.

In this post, we will focus on the money. We’ll look at your prices and profits to ensure this is financially sustainable for you.

Your main package price

In our running example from the previous entry, we decided to aim for 7x client slots at 10 hours per month each.

So now we’re onto pricing.

How much do you charge for your main service? Let’s say you charge £600.

First, let’s look at what that makes your hourly rate. You may never quote an hourly rate to your clients, but it’s a good figure to work out internally.

Since this service takes 10 hours, your hourly rate would be £60.

Revenue

If we sell all 7 slots each month, then we’ll earn 7x £600 = £4,200 revenue.

Expenses

How much are your average monthly expenses?

You might have some expenses you only pay annually or quarterly, so get your last 12 months’ expenses from your profit and loss report from your accounting software. Divide the total by 12.

Let’s say your expenses in the past 12 months totalled £6,000, so your average monthly expenses were £500.

Tweaks

However, if you finished with any large expenses in the past 12 months that you don’t expect to repeat, ignore those.

Perhaps you were paying £250 per month for 12 months for a course or programme, which is now finished. In that case, you’d only use £250 average monthly expenses.

But then you remember you just brought on a new team member who you’re paying £250 per month to. So we’ll carry on with £500 average monthly expenses.

Profit

We’ll take our £4,200 sales per month and subtract our £500 monthly expenses to get £3,700 profit per month.

Multiplying by 12, we’ll get £44,400 profit per year.

Tax

Taxes are complex and highly dependent on your individual circumstances.

We’ll do a very simple, basic calculation here to get a back-of-the-envelope idea of what our take-home pay might look like, assuming you’re a sole trader in England or Wales.

If you’re a director of a limited company, ask your bookkeeper or accountant to work out your likely take-home pay out of the profit you’ve worked out (£44,400 in our example).

First tax bracket: £0 to £12,570 profit

The personal allowance is currently £12,570, which means you pay 0% tax on that part of your profit.

Second tax bracket: £12,571 to £50,270 profit

Income tax and NICs are 29% total for profit in this bracket.

So in our example, we’ll find out how much of our profit is in this tax bracket by: £44,400 – £12,570 = £31,830

Then, we’ll multiply this by 29% to get £9,230.70. That’s how much we’ll expect to pay in tax.

Top tax bracket: £125,140 and more profit

Income tax and NICs are 47% total in this bracket.

This also doesn’t apply to our example.

Take home pay

Back to our running example: We’re planning to earn £4,200 each month, which makes £44,400 profit per year.

We’ll pay £9,230.70 in income tax and NICs, leaving us with £35,169.30 annual take-home pay.

Let’s divide that by 12 to get an average monthly take home pay of £2,930.78.

Now consider your household bills, desired disposable income, savings plans, and all the rest: does this suit your needs? Is it at least as much as you need?

Stress testing

What if you only had 4 client slots filled each month?

Then you’d bring in £600 x 4 = £2,400 revenue each month.

After your £500/month expenses and paying taxes, you’d bring home about £1,653 per month.

Is that at least as much as you need?

If so, hooray! This set up is financially sustainable, and you can now shift confidently to marketing your service packages to attract your 4-7 clients each month.

If not, what can you tweak to get what you need?

Increasing your take home pay

We put lots of numbers into this calculation, which means there’s lots to play around with to tweak it so that it gives you what you need.

• Can you increase your package price?
• Can you increase the proportion of your time you spend on client work?
• Can you find any efficiencies to decrease the time to deliver your service?
• Can you work more days per week or hours per day?
• Can you decrease your expenses?
• Can you take any less holiday?

I’ve listed these in approximately the order of the most impact they’ll have on your final calculation, but you should play around with the numbers yourself to see how they work in your situation.

Conclusion

You’ve considered your pricing, along with some money mindset considerations therein.

You’ve considered your expenses and taxes so that you have a ballpark idea of your expected take-home pay.

You’ve considered your minimums needed, so you can simply focus on that number of client slots, which is a smaller, easier, more tangible number to keep in your head than summing the sales revenues of several different clients at different price points.

If you need more take home pay, you’ve played around with the different numbers we’ve put into our calculation to see how you can improve your numbers.

And now, you’re confident in your numbers, and you’re ready to turn your attention to marketing to attract clients, and then serving them!

Gone are the days when you just hoped that whatever your clients were paying you would be enough.

Now, you have more confidence with pricing, selling, and delivering your services thanks to the structure and flexibility you’ve just created with your well-priced client slots.

That’s the power of knowing your numbers.

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