Let’s talk about M-O-N-E-Y. This is one of the most important topics (if not the most important) when it comes to business, and yet it’s the thing that most entrepreneurs talk about the least. I know when I started my business I was just grateful that people wanted to hire me, and definitely down-played my value, so I kept my prices low and struggled to make a living for longer than necessary. Many of us are taught that “money is the root of all evil” and that talking about money (and asking for it) is tacky and rude. But as Jen Sincero writes in her awesome book You Are a Badass at Making Money, If you believe money is evil and/ or difficult to make, your bank account will reflect that.
So when it comes to pricing your goods and/ or services, how do you know where to start? In my humble opinion, this process can be broken down into three parts:
My constant mantra lately is “your thoughts create your reality”. [I didn’t make that up, by the way] So when it comes to money, the best place to start is in your own head. Believe that you are worthy of making a lot of money, envision having that money, and feel grateful for that future money. Another great mantra (if you’re into meditation) is “We live in an abundant universe”. It’s true- there is no finite amount of money and you deserve it just as much as anyone else. This graphic clearly illustrates the difference between “growth mindset” (or “abundance mindset”) and “fixed mindset” (aka : “limiting beliefs”):
Personally, I have shifted my mindset mostly thanks to these books:
2. Budgeting and Forecasting
This is not fun for most people, so it often gets put off for far too long. But as soon as possible, in the building of your business, I highly recommend taking a serious look at your business expenses (both current & forcasted), and setting some realistically optimistic financial goals. I did not do this when I started my business, which is another reason that I ended up charging far too little for the jobs I was doing. . . I just didn’t have a clear picture of how much my business was costing me or of how much money I needed to make. So here’s a list of things to look at and write down before you start pricing your goods/ services:
1. Overhead– write down how much you’re spending on everything business related. For me this includes software (plugins, themes, hosting & domains, Quickbooks, etc.), memberships, gear (computer and accessories, camera, design tools. etc.), online courses & books, my accountant, and more.
2. TAXES– Most service providers (like freelancers) do not add taxes to their invoices when charging a client, but still have to pay the tax man every quarter. And most self-employed people are paying around 20% of their income to taxes, which is not conveniently taken out of each paycheck. So we have to remember to include that 20% in the overall price, and put it aside after each job. Then when you have to make that quarterly payment, you’re ready for it and don’t have to eat canned beans for a week!
3. Goal-setting– Another rookie mistake (that I certainly made!) is not setting goals for financial growth in your business. To a certain extent, this goes back to Mindset and focusing your mind on growth and abundance. However, you also need to do some research. What are the “top” people in your field making? What steps would you need to take to get there? Also, what is your current cost of living and how might that change in the future? Besides business overhead, you have lots of other “standard of living” costs that you need to cover, and as a self-employed person it’s all coming from the same source: YOU. So get really clear on what you’re spending- write down how much goes to food, entertainment, subscriptions, indulgences- all of it. Then set goals for your business income based on your needs, wants and ideal savings.
So you’re in an abundance mindset, you know what your overhead and financial goals are. . . Now you have to do the really hard part- price your services. And then tell people what your prices are! [scary!!]
There are several ways to price things, and I’ve tried them all, but here are the most common: Charging by the hour and Charging based on VALUE. Sometimes charging by the hour makes total sense (typically if it’s a small-ish job) but for me value-based pricing is generally the way to go. Value-based pricing is basically a math formula that goes something like this. . .
Time + Money + Expertise= Value
Now I am trying to figure out a way to actually calculate this. . . but it’s a little more conceptual than tangible.
Time is obviously the time it takes you to complete the work, or create the thing that you’re selling. But it also means the time you’re saving the client/ customer. For example, if a client of mine was to build their own website it would likely take them several months or years (depending on their tech-savvyness and schedule) to learn WordPress (or other CMS) and design basics, and then implement those skills to actually produce a solid website.
Money takes into account your overhead- including money you’ve spent educating yourself to the level you’re at in your field. That is why professionals who have expensive master’s and doctorate degrees charge so much! And on the flipside, there’s the money you’re making for your client by doing this work for them. This is why logos can cost $50 or $50,000. If you are designing a logo for a huge company that is going to make millions using that logo on products, advertisements, etc. then you need to be compensated a lot more than if you design a logo for a tiny 1-person company that doesn’t resell anything with that logo on it.
Expertise. This could be lumped in with Time & Money, because there’s the time it took you to become an “expert” and the money you spent to get there. . . But beyond that there are innate skills that certain people have, personalities that are made to do some work, and other factors that have gotten you to where you are. So again, keep in mind the expertise that you’re bringing to the table, and where your level of expertise is on the scale of novice to best-in-the-world in your particular field.
Value is the sum of all these parts. And again, I wish I had a simple formula, but if you want to take a short cut, consider this – – What is the value that you are bringing to the client or customer? This is why getting really clear on your ideal client/ customer Personas. If you haven’t already, download and print my worksheet on identifying those personas, and read the “Pre-Marketing 101” blog post!
And finally, I have another pricing “hack” for entrepreneurs and freelancers who have been charging for their services for a while. You’ll know that you’ve got your pricing down when you have around a 60-70% “yes” rate from potential clients. Basically, when you’re sending out a bid for a job, or a proposal, around 30-40% of people should say that your price is too high for them. That means you’re honing in on a balance between pricing your services too low and too high, plus you’re weeding out the cheap-o’s who are (probably) just looking for the best deal. Now, this will fluctuate a little depending on demand- which is the other factor in the pricing equation. If you’re in a real dry spell, you may tweek your prices a bit to draw in more customers. But ideally you’ve got your marketing down well enough to get enough leads that you don’t need to get a “yes” from everyone who contacts you! If not, this is a goal to work towards!
Want to work through your money mindset, goals, expenses and pricing with me?
If you’re looking for personal support, consider scheduling an in-depth Holistic Consultation or Coaching call!
In the Holistic Consultation, we will spend up to 2 hours talking in person (or via Zoom) about what the bigger picture of your business is and how to take a holistic approach to improving it. Where do you want to take your business in the next year? What’s currently working and not working? Who are your ideal clients and how can you reach them?
Otherwise, you can schedule a coaching session focused around a certain aspect of your business, like money & pricing!