Pricing your business: 5 tips to make sure you pay yourself enough
Why a lot of entrepreneurs don’t pay themselves enough
During the course of running networking events and workshops and coaching my clients, the subject of what people charge for their services and how much they can then pay themselves comes up a lot.
And invariably it’s not enough for various reasons:
lack of confidence and “imposter syndrome”
not taking into account all the extra hours you’re working but not actually producing client work
cheap competitors
lack of price increases over time
a simple lack of thought and knowing all your figures.
Obviously in the first 3 years or so of running a business you might not expect to be earning its full potential, but you should a) know what you’re aiming for and b) be steadily working towards it.
By keeping a close eye on your figures you’ll see what’s happening so that you can identify the paths that are taking you in the right direction to do more of that, and the paths that are taking you away from it to move away from.
SO… I thought it might be worth a little food for thought.
1. Compare your business to an employed job:
Presuming you’re over 23, the minimum wage is currently £8.91.
A while back I saw a sign in Asda that they were recruiting on a starting wage of £9.22 ph for a store assistant (that’s £16,780 full time equivalent).
An annual salary of £25k means you’d need to earn £13.73 an hour if you work full time
An annual salary of £50k means you’d need to earn £27.46 an hour if you work full time
And if you’re employed, those hourly rates apply for EVERY hour, not just the ones where you’re speaking to customers or clients. And you get paid holiday, pension, maybe other benefits too.
So isn’t it reasonable that your business should do the same thing?
2. Consider if you’re compromising your earnings for flexibility?
Now one of the reasons many of us are self-employed, particularly if you have kids, is because we need much more flexibility than most employers are willing/able [delete as appropriate!] to offer. And there’s a fair chance that you’ve therefore made a mental compromise on what you’re prepared to earn in order to get that flexibility.
But, if you think about it, how many years’ experience do you have in your profession? If you were employed, there’s a good chance you would be able to earn WAY more than those basic starting salaries above. If you weren’t being paid according to your experience and talents, you’d think your employer was treating you unfairly and probably look for another job.
As your “own employer”, are you treating yourself fairly?
3. Check that you pay yourself for EVERY hour you spend on your business
And whilst a lot of self-employed people do work out their prices to equate to a higher hourly rate than Asda are paying, that’s often only when they are physically working on client projects. And as we all know far too well, there are an awful lot of other hours that go into running a business that clients don’t see - for admin, marketing, social media, planning etc etc etc. If you were employed you’d still be paid for that time. But are you paying yourself for that time?
To do so, your prices need to be enough to cover:
your costs + profits
ALL the hours your work on your business, not just the billable ones
pension contributions, paying yourself while you’re on holiday and ill
Are yours?
4. Don’t compete on price
A lot of businesses have competitors. If you don’t yet and your business is flying with no competition, then sooner or later someone else is going to work it out and want a slice of that pie, so it will happen.
It’s tempting to think we need to compete on price. But the reality is that lots of other factors should be forefront in your mind before this is even a consideration.
1. Are you different? Are you niche? Are you experienced in something really specific?
If not, make it so. The more niche you are, the harder you are to copy and compete with. It’s highly unlikely anyone else has your exact combination of skills, talents and experiences, so tap into what makes you unique, whittle down your audience to a very specific target and aim your services at them.
The more general you are, the easier you are to copy and that’s when pricing becomes an issue.
2. Be reassuringly expensive
A lot of psychology comes into play when it comes to pricing (I’ll explore that in a separate blog). But it boils down this little filter button that you see on every website:
Some people want to spend more, and some people want to spend less. If it’s too cheap, some people will question the quality or exclusivity. For example:
My 14 year old son (bless him) seems to think that a plain white T-shirt that costs £25 from Supreme is WAY better than a white T-shirt that costs £3 from Primark. He wouldn’t be seen dead in the Primark one because of the price label. Nothing more.
Some people shop at Aldi and some shop at Fortnum & Mason, and most of them wouldn’t even step in the door of the other one, let along do their shopping there.
Some people will spend 20p on a budget toothbrush. Other people will spend £200 on a cashmere grey bluetooth-enabled electronic toothbrush with a fancy app that measures all sorts of things (yes it is actually a thing). And neither of them would even look at the opposite one, let alone buy it.
If you’re buying a gift for someone, you probably start with a budget. Something might be perfect for that person but if it’s only a quarter of what you wanted to spend you’ll probably not buy it and look for something else that fits with you original budget.
So aim for the F&M and £200 toothbrush crowd (or at least Waitrose!) who won’t question your prices because they know exactly what they want, want quality, knowledge and experience, and you are the right person to give them that.
As a small business with limited time and resources you simply cannot “pile em high and sell em cheap”, so don’t try to. You’ll burn out, lose the love and start thinking about those jobs in Asda.
5. Look into outsourcing
If you can earn say, £75 for an hour seeing a client, why would you spend time doing admin that you could pay someone £30 an hour for? Or clean your house when a cleaner charges £15 an hour and frees up your time to earn that £75?
Knowing what you want to earn an hour helps you put things into perspective so that you can focus your time on what pays the best. Obviously there are limits - there’s a fair chance you may not be able to, or event want to, have 6 hours of client appointments in a day. But spend your time wisely and outsource if it makes sense to do so.
Do you want to chat your situation through for some ideas or help?
If so, please get in touch via my contact page. I offer a free 15 minute, no-strings-attached discovery call or longer help desk and Power Hour appointments and am happy to have a chat.
