Here’s something I recently re-learned: Most businesses have no idea how much they can charge for their services. I learned this through a conversation I was having with a friend of mine. She asked me to write this post for small business owners, so here it is.
Start with knowing how much you need to charge.
There is a wide range of what companies charge for products and services. You can find the range for products very easily. One TV might cost $4,000 and the other which looks the same might be $895. It’s all in what the perceived value in the product is.
As to services and more importantly your services you need to work backwards. You need to figure out how much money you need to live on and how much revenue your company needs to be healthy. From there you work backwards to find out how much you need to charge.
Look at what your personal capacity for work is.
A solo-preneur and a micro-business owner have a finite capacity for how many clients they can service. For me, the number is about 12. That means I need to find out how much revenue I have to create with 8 clients a year to keep my head above water.
I know what my annual cash needs are. If you don’t know this yourself, it’s the first thing you need to figure out. Once your know this number, you’ll know how much you need to charge. Tell me something; wouldn’t it make sense if you how much you had to charge your customers? If so, then take this easy first step.
Don’t forget to market and budget for that time.
While you’re figuring your personal capacity don’t forget to set time aside for marketing. My belief is that you need to set aside 20% of your time for marketing and sales. If you don’t, you’re going to be in the world of lumpy sales and it won’t matter how many clients you can service. You’re just going to be trying to get enough cash to be solvent.
I’ve learned this the hard way. There have been times in my business career where I’ve had to reach into savings to pay for living expenses. I really hated doing this and vowed I would find a way not to go there again. I learned that if I don’t continue to continually market, eventually I’ll run out of clients to service. I get on a treadmill of feeling like I have to take any business that comes in the door. I can tell you from personal experience that this never ends well.
Ask what the value is you provide.
If you can’t tell others what your value is in a way they understand, it doesn’t matter how much you charge. You’re going to have a hard time for potential customers to say yes. When someone thinks about hiring you make it easy for them to understand your value proposition. The easier it is for a potential client to understand what you do, the easier it is for them to say yes.
Even better yet, what if you could help a potential client understand the economic value of your service? If you can do this, you’re making it easier for someone to decide to do business with you.
Find companies that can afford your fees.
I learned this lesson the hard way also. I was under-charging for my services. The reason being the companies I was selling to couldn’t afford to pay the fees I needed to charge.
It’s actually more and harder work helping a business that makes $100,000 in profits versus a business that makes $1,000,000 in profits. It’s easy for me to help a very successful business owner come up with reasons they should hire me. It doesn’t matter if someone making $100,000 knows they should hire me, they will just never get themselves to write the check. It’ll be too much money.
If your annual fee needs to be $50,000 per year, your client is not going to hire you if they make $100,000. If they make $1,000,000 the number is a smaller percentage of their gross. It makes it easier for your potential customer to say yes.
Like many planning exercises, this one helps when you start at the end and work backwards. Do you think this makes sense? Are you willing to think about your fees in a serious manner?
I’ve written a special report on four tiered budgeting. This method of budgeting helps you think about your business in a manner that will help you figure out what you need to charge. If you’re interested in getting this special report, click on the button below.