Money matters. If you don't have a profitable business, if you rely on venture capitalists (V.C.'s), angel investors including parents, spouses or friends to cover operations costs beyond the start-up phase, then your business is not sustainable. As a small business or solo entrepreneur, do you want to keep relying on external capital? OR Would you like to build an independent, sustainable business? Is your business revenue covering your business and living expenses? If not, let's see if we can turn things around. This focuses on service pricing strategy, but some areas may be valuable to retailers and manufacturers as well.
The Pricing Dilemma
"What are people willing to pay?" Isn't that the question we often start with? Then we work backward to see how many clients or sales we need to hit our 'desired' earnings. Now, this is just our internal dialogue.
We've started by undervaluing our services, expertise, time and energy. Then we encounter prospects (often with the same mindset) who balk at our prices, and immediately start the discounting - waiving fees, promotional offers, exchanging services - earning even less.
By the time you've done this long enough and come to the realization that it's not working and you haven't had a paying client (i.e. a client) in months, you've already established a reputation as a 'discounter' with those 'clients' and everyone they send your way.
Still, it's not too late. I say, as long as you're alive, you have a right to redefine your business.
It helps to start looking inward. Whatever path you choose, there are clients aligned with that. Stop worrying about them for a second. Give yourself a second to think about how to keep your business alive. What are your business expenses? These allow you to do what you do for your clients. If you can't afford these, you can't help them. What are they? Here are a few:
- Operations: Transportation, business tools e.g. Invoicing, industry-specific tools, automation.
- Marketing & Business Development: Networking, membership dues, trade shows & conference exhibits, brand identity, social media, marketing collateral (brochures, business cards).
- Administration: Taxes, tax professional, printing, website hosting, telephone, Internet, utilities.
The point: Pricing does not just include your time. Beyond your numerous costs, your training, expertise and transferable experience should all be considered. Once you sit and face the reality of these numbers, take into account:
- Hours you will actually work each month/year, excluding hours for admin, vacation, etcetera.
- Honestly, how many clients you can serve, or how much work you can do, within those hours.
Assessing how much you'd have to charge to earn (what you actually need) to stay in business in the long-term, and to live well, you'll get a sense of what your prices really should be.
Now, Your Offering
If you're in business, you're already offering something that clients appreciate. If you're not charging enough, your clients will probably change when you raise your prices. Chances are, your new prices truly reflect the value of your existing offering. If not, your existing clients can still help you figure out how to make your current offering a premium offer. What is it?
Whatever you decide, ensure that you create offers that you can actually deliver on. Account for time and energy requirements, and your ability to stick with it in the long-term.
Getting clear on Why you charge what you charge strengthens your resolve to walk away from anyone who expects to negotiate price with you. Find me on Twitter or LinkedIn (see below) or subscribe to my e-News for more on this topic. I trust that you can do this all yourself, but if you need some help with this, Let's chat! Plus, explore my consulting options to learn more.