Furthering our example from above — if the $300 Coaching Offer is only made to a customer that purchases the Core Offer — the formula for calculating ACV will change. Customer Lifetime Value has its place but this isn’t it. Any changes to this number should be evaluated further to see what effects it has on cash flows. As you might remember from your basic economics class, the market rate is based on supply and demand. Here’s the formula for calculating Average Visitor Value… Average Customer Value (ACV) * Tripwire Conversion Rate = Average Visitor Value (AVV) Here’s what it looks like for the example funnel above… 67 * .05 = $3.35 Average Visitor Value (AVV) This means that you could spend as much as $3.35 per click without going negative. If you’ve ever done business with an agency, the average billing rate is 3x the salary of the person doing the work; that 3x multiple translates into 33% billable time. In the example above, that $62,800 in necessary income is $188,400 in what you must bill in total for the year. This means that you could spend as much as $3.35 per click without going negative. Obviously, if the company does not have adequate cash flows to cover payments at a faster rate, the current average payment period may show the current credit terms are most appropriate. You’ve taken risk in even considering going independent and you need to be rewarded for it. Download our proven Customer Avatar Worksheet now and get clear on who you’re selling to.). Taxes and benefits: Once you have your labor cost, add on all the benefits that are generally required or expected of an employer such as employer payroll taxes (the employer’s share of Social Security tax and Medicare), workers compensation insurance, unemployment insurance and contributions to health insurance and retirement savings. Start calculating these two formulas and it’s game over for your competition. To calculate, first locate the accounts payable information on the balance sheet, located under current liabilities section. Average payment period is the average amount of time it takes a company to pay off credit accounts payable. Thanks in advance. Your competitors are guessing how much they can pay per click… you have data. Therefore, investors, analysts, creditors and the business management team should all find this information useful. How to Determine My Bill Rate and Consulting Fees. The average payment period can help the management team see how efficient the company has been over the past year with such credit decisions. Successful digital marketers monitor these two metrics…, In just a minute we’ll look at a concrete example…. billed rate to client. It factors in the costs you need to cover to make your target income. As long as it is in line with the average payment period for similar companies, this measurement should not be expected to change much over time. 1-800-220-0469 | email@example.com | Directions, Independent Workforce Engagement Solutions for Enterprises, Business Service Solutions for Self Employed Independent Professionals, 3 Ways to Calculate Your Billing Rate for Consulting Services, © 2020 MBO Partners. Practical Usage Explanation: Cautions and Limitations. How Much Should I Charge as a Consultant? Your best source of information is competitive research: who are your competitors, what do they offer, and how much do they charge? Bill rate: $22.40: Pay Rate x Burden Rate = Costs. In other words, some offers in your funnel may be DEPENDENT upon the purchase of the prior offer. One decision they need to make is to determine if it’s better for the company to extend purchases over the longest available credit terms or to pay as soon as possible at a lower rate. Then… they adjust based on data. Average payment period (APP) is a solvency ratio that measures the average number of days it takes a business to pay its vendors for purchases made on credit. To calculate, first determine the average accounts payable by dividing the sum of beginning and ending accounts payable balances by two, as in this equation: Average Accounts Payable = (Beginning + Ending AP Balance) / 2. Ryan has been called one of the world’s leading digital marketers by Shark Tank star, Daymond John. Simply put, this bill rate is very specific to your client and your contribution. Thus, it would make more than 10% on its money reinvesting in new inventory sooner. Tripwire Price + (Core Offer Price * Core Offer Conversion Rate) + (Profit Maximizer Price * Profit Maximizer Conversion Rate) = Average Customer Value (ACV), Here’s what it looks like for the example funnel above…, $7 + $100(.3) + $300(.1) = $67 Average Customer Value. Home; Board Archive Index; Excel Formulas; How to calculate average hourly pay rate; Posted by Arnie on August 10, 2001 4:18 PM. The same holds true for independent consultants who have a unique, valuable and scarce skill. This is about IMMEDIATE Average Customer Value (ACV)… not Customer Lifetime Value. Overhead costs: Overhead costs are costs that you incur to run, maintain, and grow your business. These are simple formulas you can apply RIGHT NOW that will take all the guesswork out of your marketing. Let’s start with understanding what a bill rate is—the amount a company or professional charges per hour of work. All Rights Reserved. As you may have guessed, it’s based on the value you provide to the client and the ROI they receive. Or, if the company extended payments over a longer period of time, it may be possible to generate higher cash flows. BECOME THE SMARTEST MARKETER IN THE ROOM, 4330 Gaines Ranch Loop Suite 120 Austin, Texas 78735 ©Copyright 2019 DigitalMarketer - All rights reserved, 6 Simple Facebook Contests You Can Set Up in 5 Minutes, Copy & Paste Our Best 101 Email Subject Lines [PDF Download], blog we’ve grown to over a million dollars a month in sales, How to Launch a Podcast, Drive it to the Top of the Charts, AND Keep it There in Just 4 Steps, How to Build a Marketing Dream Team for Your Brand (Even if You Aren’t a Marketer), The Ad Grid: How to Build Traffic Campaigns that Convert Higher and Scale Faster, How much is a customer worth? For example, is the company meeting current obligations or just skimming by? There are three steps you can go through to determine how much to charge for consulting services: Costs consist of labor, taxes and benefits and overheads; these can also be known as fixed vs. variable costs. $14 x 1.12 = $15.68 A weight loss/fitness blogger has built the following funnel. Assume that Clothing, Inc. can receive a 10% discount for paying within 60 days from one of its main suppliers. Connect with Ryan on Twitter. If you own the only gas station on a 300-mile stretch of highway, you’ll be able to price pretty high. These costs can’t be directly tied to the services being delivered and thus generally do not get invoiced to your clients. How to calculate average hourly pay rate . Do you see the power knowing this number will give you over your competition? (Average Customer Value or ACV), How much can I pay for traffic? Your goal is to be willing and able to spend more than your competitors to acquire customers. A business switching from an internal billing department to an external vendor can increase their revenue by $201,600 on average. Or, is the company using its cash flows effectively, taking advantage of any credit discounts? Whatever your strategy, you should review your rates often or at least annually. If you can do that… you win. Your rate can be as high as what a client is willing to pay—but finding out how much that should be is the tough part. If your billing rate is market-based, you can assure that the amount will meet your client’s expectations. To accurately calculate a market-based bill rate, you must have current market data. They guess how much they can pay for traffic. We use this system for every business we start, acquire or consult… including this blog we’ve grown to over a million dollars a month in sales. For example, a 10 / 30 credit term gives a 10% discount if the balance is paid within 30 days, whereas the standard credit term is 0 / 90, offering no discount but allowing payment in 90 days. Tax-deductible expenses: Getting down to the details can be worth it at tax time. You can also define what you do in terms of what you make or provide—website design, training sessions, etc.