3 Questions to Ensure You Charge What You’re Worth
If you’re running a service-based business, you are most likely not charging enough.
As with most entrepreneurs you are probably guilty of working way too hard, undercutting your own prices, and still stressing about making ends meet until you receive your next payment from a client.
The largest problem with service-based businesses is that they are dependent on human working hours that are not scalable without hiring more humans and having them work more hours. Compound that challenge with the fact that your main product, your expertise, is invisible and often comes with a lack of perceived value, along with billing services based on keeping hourly rates competitive, and the dream of financial freedom seems beyond you.
If you don’t like what you see when reviewing your financial statements, the instinct is to look at your expenses and try to identify where you are leaking money, where you see excessive or unnecessary spending, and rein those in. Don’t get me wrong, that is never a bad thing to do!
Now take a closer look at the top portion of your Profit & Loss Statement (also known as Income Statement), and ask yourself these 3 important questions:
Are you generating enough income?
Do you know what your “enough” is? Between your personal expenses, and the business expenses you know will happen every month or vary based on the amount of client work you have, take time to calculate what your income needs to be to ensure all these obligations are met. What additional income you would like to live on, vacation with, treat yourself and those you love, or invest? But all that only gets you to break even.
Seek out the opinions of professionals you respect and ask what they think about your pricing structure, adjust based on what you believe the market can bear, and then align that structure with your brand. There is an art to identifying how much each client values the service you are offering in a more holistic way – per month, project or desired result – rather than them buying your limited and unscalable time by paying hourly. Based on your ideal income, how many projects do you need to work on, or clients you need to have and at what price point?
Does your pricing reward the right behaviour?
How many times have you reduced your prices to friends or family or any other potential client who happen to know your friends or family? Before long every potential client seems to have some connection to you that they feel should be rewarded. Curious enough, the people closest to you often tend to value your time and expertise the least, and discounting only perpetuates that belief.
How many times have you taken lower than your normal price for the promise of future and much larger projects? How often have those larger projects actually come to pass? My guess is not often enough. Instead of giving discounts to a new client, try creating a referral program in the form of bonuses, gifts or cash rewards to those who refer them. Not only do you encourage the behaviour you want to see (your friends, family, and existing clients sending new clients your way and helping to qualify them in the process), but they feel truly rewarded in a way that discounts don’t accomplish.
Do you value your expertise?
How many years of education and professional experience has it taken you to get to where you are today? Since starting your own business, how long have you spent perfecting the systems you’ve put in place to ensure the highest level of service to your clients? These things have value beyond the service itself that you are selling. But if you don’t value those things, as well as your own working time, then you can’t expect friends, family or potential clients to.
How many times have you offered a discount to potential clients coming to you with a backlog of work to be done? As in the previous point about pricing for behaviour, not only is it important that this behaviour not be rewarded but instead, have the confidence to charge a premium anytime a new client’s work will disrupt the client service machine you’ve worked so hard to build. An old but good illustration of the power of valuing your expertise can be read at this link.
It is usually easier to start new clients on your updated pricing but revisit your recurring client engagements annually to ensure they are still profitable. If they aren’t, identify opportunities to reduce or eliminate costs, then begin building your plan to increase your prices. You work too hard, and you are worth too much, to continue feeling like you’re barely getting by.
For a cloud accounting solution that will help you keep track of your finances on the go, give Sage a try!
Accountants Group Leader, SAGE North America