How much are your products and services really worth? You must be able to answer this if you have any real hope of setting your prices for profit, not just for turnover-survival.
Don’t Turn Your Back on Turnover
You aren’t alone if you think solopreneur, freelance or side-hustle business is too small for a pricing strategy.
Many of the business owners I work with tell me that they don’t need one. They’ll say their business consists of just one or two people, or they haven’t got a long list of different products and services to keep up with.
Are these really good enough reasons not to make sure you’re charging the right prices for what you sell?
Price-setting can feel like a daunting task, particularly when you’re only just starting out in business. There will be a strong temptation to charge far less than you should in the beginning, because you’re not sure where you sit in the marketplace, or how much potential customers are willing to pay.
This is the point where many new business owners will tell themselves that they need to build up some experience before they can charge more.
Later, they worry about scaring away regular customers by putting their prices up or new customers who may not be happy with higher rates. Some others say their industry is too competitive to risk raising their prices.
I’ve heard a lot of stories like these, and my response is always the same.
If you want your business to make money, you need to sell your products or services at the right price, not the price you think you will get away with
After all, getting a new venture off the ground – and then maintaining it – takes a lot of hard work. You will be working much longer hours, and putting far more of yourself into your business than you ever did when you were employed.
Don’t you deserve a profitable business in return?
So, start by rolling up your sleeves, and doing some research.
How Much Do You Need to Turnover?
Budget-setting is just as important as price-setting.
Face it.
If you don’t know how much you need to make in order to live as well as run your business, how will you know when your business is profitable?
Set aside some time to follow these three steps:
Step 1: How Much Money Do You Need to Live?
Calculate the cost of all your annual life essentials, such as food, rent or mortgage, travel, childcare costs etc.
This is your SURVIVAL BUDGET
This amount is your base-line life costs; the amount of money you need live on.
Step2: How Much Does Your Business Cost?
A business costs money.
It doesn’t have to costs loads of money – but you can’t do it for free. You need to be 100% aware of what these costs are.
You can calculate the cost of your business by adding up what you pay annually for things such as website hosting, insurance, networking, professional memberships, software packages, marketing materials, subscriptions, travel, stock….
The list goes on.
Ensure you include everything, no matter how minimal.
This is your BUSINESS BUDGET. It’s your base-line business costs; the amount of money your business needs to operate.
Step 3: How Much Do You Need?
Now it’s a bit of simple maths.
Add together your Survival Budget and your Business Budget. This will give you your base-line (or break-even) annual turnover figure.
Once you have calculated that number, divide it by 12. This will give you your monthly target turnover figure.
For example:
- Survival budget is £20,000 a year
- Business budget is £4,000 a year
- Annual turnover target is £24,000
- Monthly turnover target is £2,000
It’s amazing what happens to your pricing mindset when you look at your business in pure number terms.
If you realise you are not charging the right prices for your products or services you will know the direct result will be an inability to pay for essentials such as food, heat and shelter.
How Much Do You Want to Turnover?
I once worked with a client who accepted a contract with a large garden centre. She lowered her hourly rate to win that contract, and was really pleased when she got it.
Unfortunately, she hadn’t followed the three steps outlined above before agreeing to the ‘negotiated’ lower rate.
We sat down and worked out her survival budget and business costs. Doing that we calculated she was charging out her services at (minus) -£4 per hour.
She would be paying that firm to work for them!
So, let’s think about how essential it is to understand the difference between knowing what you HAVE TO turnover and what you WANT TO turnover.
Running a Business is Not About ‘Getting By’
Running your business shouldn’t be about scraping by and learning how to get by on a shoestring!
You have to be honest with yourself and admit how much you want to earn from all the hard work you’re doing
Running a business on your own naturally means that you will be very close to what you sell.
As a single-person or micro business, your customers are more than likely buying YOU, not just your service or product!
Being ‘exposed’ like this can be very scary.
It often throws up a whole heap of personal issues around confidence and self-worth.
What does this proximity really mean?
Your lucky customers will be getting a totally unique combination of your skills, your experience, and your personal values.
As a Business Mentor, I can assure you, pricing for profit is one of the key areas of work with my clients.
It’s getting them to know – but more importantly, to own – how much they are worth.
The outcome? Feeling comfortable (or at least hiding the discomfort) of asking for the price they want (and deserve).
In business terms and in turnover terms WANT is not a bad thing
Don’t sell yourself short. Carry out a skills analysis, look back over your achievements and think about everything you have to offer as a person as well as a business owner.
Think about what you need and what you want and start setting your prices from there.
Let the maths do the work for you
Let’s Make Your Pricing Strategy Work for You!
If you’d like to discuss how to set realistic prices in your business book a FREE conversation with me today?