As a small business owner or solo-entrepreneur one of your most pressing concerns is likely to be around pricing. Pricing, after all, can mean the difference between closing the sale (or not), winning the bid (or not) and staying in business (or not). Too often, pricing becomes an emotional issue for the independent professional ("Am I worth what I'm charging? Should I charge less? Should I charge more?") rather than being grounded in more practical, economically driven approaches.
While there are no standing rules for how much a coach, consultant, or solo-entrepreneur should charge there are some general guidelines to consider:
1) First, make a commitment to being profitable. It's no use running a business if you aren't making any money at it. Entrepreneurship is the most fun when you have freedom and dollars. Once you've decided that you truly desire profitability in your business, then:
2) Consider your personal needs and goals. How much money do you need to live as you wish? To save for retirement? To cover any unforeseen events? This, in my experience, can be a tough question to answer. Most people begin with a very vague notion, "Oh, about $5000 or $6000 per month" or something ambiguous "As much as I can possibly make". Neither of these are right answers. Get really clear on this part. It's important.
3) Now, take the number you need to earn (per year or month) and divide by the number of days you reasonably expect to work. Allot time off for holidays, vacations, and sick days. You might find, as I did, that the number of days I could reasonably expect to work was a lot less than I imagined it would be.
4) Finally, divide #2 by hours worked per day. This is your minimum hourly rate. I'd suggest doubling it or tripling it in order to account for "non-billable" time (especially if you work as a coach or consultant). This should be your starting point for profitable pricing. You might find that your hourly rate is higher than you're comfortable with. If so, see #4.
5) Once you've figured out your minimum hourly rate and then doubled or tripled it, make a commitment - to yourself and your business - that you won't work for less than you deserve. While it is always tempting to reduce your fees to get "some money" instead of none, I've seen many consultants who could never break out of the "reduced fee" tier, because the word got around that they worked for less. Since they worked for less money, they had to work more hours, and it was very difficult to break this pattern once it had begun. Also, consistently earning less than you need is like putting your business into a black hole. Your business starts to suck up everything in its path and will leave you feeling harassed, overworked, and resentful.
6) Finally, consider your knowledge, life experience and expertise. If you have taken specialized training in an area think about doubling your investment in the first year. For instance, if you spent $600 on training or books aim to gain $1200 (or more) of new business related to this new training. Each of you may have different guidelines but do aim to get a return on all the training, living and experience you gain.
7) Raise your fees, even slightly, each year. Although individually it may not seem like much a small price increase can add up to more dollars in your business. If you work with clients over the long-term, discuss up front, some kind of price adjustment strategy for the long-term.
8) Keep track of your profitability on a quarterly basis. By tracking your expenses and your financial output, you will be in a better position to assess your current status and address problem areas while forecasting for continuing expenses each quarter. Then when tax time rolls around, you are also aware of your expenses in comparison to your profits. Assessing your profitability a few times per year can give you a useful snapshot of how you're doing and you still have time to make adjustments if needed.
9) Aim, as soon as possible, to get away from trading hours for dollars. Instead, find ways to create other streams of income that works for you when you're not working. You might write a book or booklet, create some audio tapes, package a seminar or train others to deliver your services.
10) Learn from your pricing mistakes. We all have, at times, asked too much or accepted too little. Instead of berating yourself for these situations use them as guideposts for correcting yourself in the future. It's not a mistake if you learn something from it.
Remember, one of the litmus tests for business success is profitability. Use these strategies in your own business and you, too, will be on your way to more profitable pricing.
Dr. Rachna D. Jain is a sales and marketing coach. Sign up for her free email newsletter, "Sales & Marketing Secrets" sams-subscribe@salesandmarketingcoach.com.
© Copyright 2004, Dr. Rachna D. Jain
