Certain finance essentials are at the heart of any successful business.

But the money stuff can also be one of the most daunting aspects of being a freelance trainer.

You know what you’re doing as a trainer, of course, but you may have a million and one questions about managing your business finances effectively:

  • What should I charge?
  • How do I know what to quote for a training contract?
  • How can I keep on top of my cash flow?
  • What do I need to earn each month?
  • What outgoings should I include in my budget?
  • How much tax and National Insurance will I need to pay?
  • Is it OK to put up my prices?

These questions come up in the Trainer Talk community all the time.

Over the past ten years, I’ve written a number of blogs about the different finance essentials for freelance trainers.

I’ve created this article to pull everything together and give you all the sources of further information in one place.

"You must gain control over your money or the lack of it will forever control you." Quote by Dave Ramsey

Finance must-haves – The numbers you need to know

Poor cash flow is one of the main reasons that businesses fail.

One of the most important things you can do in terms of your finances is to know your numbers.

In other words:

  • How much money do you need to earn per year to cover your expenses?
  • How do you plan to price your training services and what do you need to sell to bring that amount of money in?
  • Who are your highest value clients?

The first question is crucial. You need to have a good understanding – and review this regularly – of your outgoings.

Fixed Costs

These will include your fixed costs, i.e. those that are the same every month:

  • Rent and/or mortgage payments on business premises, if applicable
  • Utilities for which you pay a fixed price
  • Insurance (e.g. Professional Indemnity and Public Liability)
  • Pension contributions (if you have arranged a private pension)
  • Broadband
  • Vehicle payments (if you have your car through a finance agreement)
  • Website hosting
  • Professional subscriptions
  • Online networking memberships

Variable Costs

You will also have variable costs that often go up and down depending on how busy you are within your business. These costs can include:

  • Petrol and travel expenses
  • Advertising and promotion
  • Legal and professional costs, such as solicitors’ or accountants’ fees
  • Printing, postage and stationery
  • Software and IT hardware
  • Office supplies
  • Tax
  • National Insurance
  • Training materials and resources
  • Self-development
  • Networking events

You might have variable outgoings in your personal expenses too.  Although you won’t include these in your annual tax returns to HMRC, you will need to be able to pay yourself enough to cover them.

Semi-Variable Costs

There will be semi-variable costs too that are present every month but might fluctuate slightly. I think of these as things like:

  • Gas and electricity
  • Telephone (mobile and/or landline)

With variable and semi-variable costs, my advice is to total them up over 12 months and then divide them by 12 for a monthly average.

If you decide to hire support such as a Virtual Assistant, social media marketing, copywriting, graphic design, etc., you would need to add these services to your outgoings too.

Try to over-estimate rather than under-estimate your outgoings as this will help you to cope in the leanest of months.

This is how much it will cost to run your business.

Tax-deductible outgoings

You can include some of your outgoings in your annual tax return. Certain outgoings are known as tax deductible. This means they can be subtracted from your income figures to reduce the amount of tax payable.

You can find a full list of tax-deductible expenses here.

If you decide to hire an accountant to complete your tax return on your behalf, they will be able to give you detailed advice about tax-deductible expenses.

Personal vs business outgoings

If you work from home some or all of the time, you are entitled to claim certain percentages of your utilities, for example, as tax-deductible expenses. The same goes for your mobile phone bill and vehicle expenses if you sometimes travel to and from client meetings.

There is advice online about this. Gov.UK offers a simplified expenses checker.

An accountant will also be able to give you more advice.

As well as calculating the expenses related to your business, I suggest separately calculating how much money you’ll need to cover personal expenses such as your home mortgage or rent, council tax, water bill, house insurance and home utilities.

Try to note down your average monthly food and entertainment spend when working out what you need to earn.

If you have kids, how much do you need to earn to cover their uniforms, after school activities, school trips, music lessons, bus passes and clothes?

For the pet lovers among you, how much does food, insurance, veterinary care, a dog walker, hay, bedding, etc. cost you each month?

Although you may share these expenses with a partner, knowing how much you need to find each month will also dictate what you need to earn.

How much you need to earn

Once you’ve got this far in working out your numbers, you’ll have a rough idea of how much you need to earn every month to cover your living and business costs. This is before making any profit.

Your next task is to map out how you plan to price your products and services and what you would need to sell each month to ensure that your income exceeds your outgoings.

Setting your rates – Facing the fear!

Ever since I first set up The Trainers Training Company and Trainer Talk, the subject of what to charge as a freelance trainer is invariably the hottest topic in the room.

Setting freelance training rates can be daunting.

The biggest fear is usually, “If I charge too much then I won’t get any work”.

Too often, this leads to amazing, gifted trainers drastically undercharging for the services they provide.

But, by not charging what they’re worth, they can end up with a training business that isn’t sustainable.

Undercharging can result in:

  • Struggling to pay the bills
  • Having to work harder and longer to hit your financial targets
  • Not having time for better-paying contracts or work you feel excited to do
  • Losing confidence and motivation because you can’t get off the hamster wheel
  • Ill health and eventual burnout

I don’t want that to happen to you. Below, we’re going to look at how you can face your pricing fears and set rates that you’re happy with.

Be confident about your worth

I always advise new freelance trainers who ask about pricing to be confident about charging what they’re worth when setting their rates.

A day rate, for example, can sound like a lot of money but you have to remember that it covers intangible benefits as well as tangible costs:

  • Finding a new client
  • Client meetings
  • Regular contact by phone, email and/or in person
  • Writing a proposal (and learning the skills to be able to do this)
  • Designing a training programme
  • Phone bills
  • IT (hardware and software)
  • Printing
  • Professional subscriptions to keep your knowledge up-to-date

You also need to cover holidays, sick days, maternity/paternity leave, etc. and – given all the tasks involved in running a business – you may only have 100 to 120 fee-earning days available each year.

By working with a freelancer, your clients save a multitude of costs associated with hiring a full-time employee. Your higher day rate represents the years you’ve spent crafting your skills and knowledge, as well as the practicalities of running a business.

You’re bringing all that value to your clients.

Quote about charging what you're worth

Your charging model for a profitable training business

Your first task after working out your outgoings will be to decide what model you plan to use to price your training services.

Should you charge an hourly rate?

Or a daily rate?

Should you have a day rate for direct work and a different day rate for associate work?

Is it better to quote a fixed fee per contract/project?

  • Hourly rate

My advice is to ditch the hourly rate model if at all possible. What you offer is about more than minutes and hours. It should be about value and outcomes.

  • Day rate

Many trainers opt for a day rate because it’s simple for quoting and invoicing purposes. Clients are also used to paying day rates. It’s something I cover in my six-week online programme, How to create a successful and profitable training business.

The downside of a day rate, as with an hourly rate, is that it puts a cap on how much you can earn per year.

  • Fixed rate

Personally, I prefer the fixed fee model for charging, both for consultancy work and training delivery. The idea with this approach is to set a fixed fee for an entire project/training contract that’s focused on value rather than when you clock in and clock out.

Does your industry or location affect what you can charge?

Anecdotal experience suggests that the industry you work in can influence how much you can charge.

It’s always worth asking clients what budget they have in mind and what outcomes they want from the training you deliver. This will help you to determine what value your training has to the company.

Some trainers advocate changing your rates according to clients’ budgets or sectors but, if you’re likely to get referrals between clients and sectors, you might want to avoid this approach. The last thing you want a client to think is that someone else is getting the same service from you at a much lower rate.

Location is certainly a factor with charging. Due to the high cost of living in certain areas, trainers in London and the South East of England tend to charge higher rates than those in the rest of the UK.

Test the water

You may need to flex your pricing muscles a bit before you hit on a comfortable rate.

If you find that every quote is accepted without hesitation then you’re probably undercharging for your services. If so, put your fees up a bit and see what happens.

If everyone rejects your quotes, you may be charging too much.

The sweet spot is when most quotes are accepted but a few are rejected. This isn’t a reflection of your skills, just that the potential client might have a tight budget.

Above all, avoid working for low fees because, when work you really want comes along, you’ll be too busy (but underpaid) to take it on.

It really is possible to charge what you’re worth and feel good about it!

Is discounting ever OK?

While I’m still on the subject of setting your rates, I’m often asked if it’s worth offering a discount to secure new work.

As with most pricing models, there are pros and cons.

On the pro side, discounting can:

  • Incentivise people to book because they’re getting a bargain
  • Give you a special, time-limited offer to build a marketing campaign around
  • Bring in bookings during typically quiet periods

On the con side, however, discounting can also:

  • Attract people who are shopping on price (and the lowest paying clients often require the greatest amount of effort)
  • Attract clients who will leave you for a new trainer the moment they find someone cheaper
  • Cause potential clients to question your value and to compare you to your competitors
  • Encourage potential clients to challenge your usual rates or hold out for a discount
  • Eat into your time and profits

There are smart ways to use discounts within a training business.

For example, you could offer a long-term client a discount as a thank you for a referral.

You could also offer a five per cent discount on invoices paid within seven days (many people offer this but raise their prices slightly so they don’t lose out by having prompt payers on the books).

Another option is to give a slightly lower rate to clients who hire you on a retainer. The trade here is cheaper rates for the client in exchange for a long-term commitment to using your services, i.e. a guaranteed monthly income for you!

Getting paid on time

With your outgoings and income worked out, you need to make sure that money comes in when it’s expected. This finance essential means ensuring that you get paid on time every time you send out an invoice.

In my two-part guide to getting paid on time, I suggest the following steps:

  1. Have clear terms and conditions, and a contract, from the outset
  2. Charge a deposit, e.g. 25%-50% upfront and the remainder on completion
  3. Ask your clients if there’s anything they need you to include on your invoice for swift payment, e.g. a Purchase Order number
  4. Use clear language on your invoices, e.g. ‘Payment due in 30 days’ rather than ‘NET 30’
  5. Send your invoices as soon as work is complete
  6. Send a friendly reminder before your invoice is due
  7. Shorten your payment terms – you might try seven or 14 days rather than 30
  8. Charge a late payment fee and/or interest on overdue invoices
  9. Give clients incentives to pay on time, such as prompt payment discounts or preferred payment terms
  10. Offer electronic payment options

You can read parts one and two of my paying on time guide for more in-depth advice.

Raising your prices

As the cost of living rises and you become more experienced, a time will come when you want to raise your prices.

Many businesses do this annually, if not more often, and there’s no reason why you shouldn’t too.

Understandably, many freelance trainers worry about doing this.

  • Will people still want to work with me?
  • Will I lose my existing clients?
  • Does raising my prices make me seem arrogant?
  • Will higher rates turn new clients away?

These are all common fears.

It is possible to raise your prices without losing clients.

Remember that most businesses routinely raise their prices and we don’t bat an eyelid. I think there’s something about freelancing and having that one-to-one relationship with clients that can make what we charge feel much more personal.

But, in truth, you’re running a business. And like every business, your prices are allowed to increase with your expertise.

My advice is to:

  • Thank your clients for their loyalty
  • Pre-warn them about any price increases
  • Explain why your prices are going up (e.g. you’ve been over-delivering for a while and don’t want to compromise on quality by taking on too many clients) but don’t apologise
  • Add features and value
  • Offer a choice of packages, including a lower price option with fewer features
  • Be prepared to let a few people go – some clients may not have the budget for your increased rates but this isn’t a criticism of you, it’s just their circumstances

Making a passive income

Something else that often comes up in the Trainer Talk community is whether it’s possible to make a passive income as a freelance trainer.

This is a way of bringing in single or multiple income streams where people are able to buy from you without requiring your real-time presence.

Passive income allows you to be working with clients, off sick, away on holiday, spending time with your family, etc., while still bringing money into your business.

My experience is that, yes, it is possible for freelance trainers to create passive income streams.

Ideas that might work for your business include:

  • Creating and selling an e-book
  • Developing an e-course
  • Offering an online membership group
  • Affiliate marketing
  • Webinars

I should point out that digital goods sold from the UK to customers in Europe are now subject to VAT MOSS regulations. However, if you sell through a third party platform such as Amazon, Udemy or Teachable, they will deal with VAT MOSS on your behalf at the point of sale.

Some exemptions to VAT MOSS do apply and, of course, everything may change if or when Brexit happens so it’s important to check the link above for the latest information.

Common mistakes and cash flow killers

Even with all of the above finance essentials in place, you’ll need to revisit your accounts on a regular basis to keep money coming in on time.

Common cash flow killers include:

  • Ignoring the numbers
  • Not tracking sales
  • Overspending
  • Relying on promises, not contracts
  • Not invoicing regularly
  • Hanging on to the wrong clients
  • Not knowing your slow and busy times

You should also be wary of common financial mistakes such as:

  • Overpaying tax because you’re not claiming for all your tax-deductible expenses
  • Ignoring the business plan, i.e. spending money in the wrong places
  • Not tracking your time
  • Trying to do everything yourself – automating or outsourcing can actually be great money savers
  • Poor accounting processes

Quote from Dave Ramsey about finance essentials

Give yourself a safety net to cover the finance essentials in your business

Ideally, I’d always recommend having between three to six months’ worth of money in a suitable savings account.

This will give you a safety net to pay all of your outgoings if you suddenly have to take a break from work for any reason.

Although many freelance trainers start without this safety net, having some money in reserve can protect you in the event of an unexpected bill or a large overdue invoice.

Let me know how you get on

I’d love to hear more from you about how you manage the finance essentials as a freelance trainer.

And, if you’d like to chat with other freelance trainers about what works to them, why not join the Trainer Talk community?

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