Do you have to work all hours under the sun to make enough money? Are you sure you are short of time or is it that your prices are too low?
As a service based business what often limits how much you make is a combination of time and how much you charge for that time. Get that wrong and you are in trouble.
In working out your prices, they need to cover the cost of you providing the service. You don’t want to be making a loss. One of those costs (and probably the biggest) is your time. Put a dollar value on that time to make sure you’re able to pay yourself.
When I work with people to help them decide how much that time is worth, I see people making 5 common mistakes. In making these mistakes they are undercharging and not paying themselves enough to make a good living out of their business.
By good living I am not talking about 7 figures. I am talking about earning enough to pay the bills and have some money left over for the nice to have stuff. It doesn’t mean you aren’t aiming for that 7 figures if that is your big goal. Rather it’s a great step along the way if you are aiming for that.
These mistakes include:
1. Non-Chargeable Work
For everyone, there is some element of the time you spend on your business that is not related to client work. This is time you spend:
- marketing your business,
- doing admin,
- creating content,
- talking to team members
- and so many other things you need to do to run your business.
When working out how much you want to earn each week from your business you need to factor in that only part of your time is available to earn this money. This then needs to be reflected in your prices to achieve your income goals.
How much time that you spend on these tasks will vary depending on your role in your business and the nature of your business. It is not usual though for it to be between 30% and 50% of your time. A great activity to do is to track your time for a couple of weeks to get a sense of this time.
If you are just starting out in business, then the amount of non-chargeable work will be higher. You will be spending more time marketing and less time working with clients while you get your business off the ground. What I suggest in this instance is to have a target for the number of chargeable hours you want to do per week and use that as a guide.
2. Not taking holidays into account
The other non-chargeable time is when you are on holidays. Holidays and switching off from your business are as important as any other activity you do to grow your business. You aren’t going to have a business if you don’t look after your health and having proper holidays is part of this. Holidays where you aren’t sitting by the pool tapping away on your laptop working while everyone else if off having fun.
Not to mention how much switching off can help with creativity and giving your brain the space to process ideas you have for your business.
The problem with taking holidays, for service based businesses at least, is that the money stops coming in. Unlike when you work for a company, there is no formal annual leave, no salary being paid while you are on leave. Not having a plan in place to pay yourself while on holiday leads to you either working while on holiday or feeling stressed while taking a break. Which negates the benefits of taking a holiday.
It is why you need to take into account holidays when pricing. What big businesses do is factor in the cost to pay for employee holidays when working out their costs. Are you doing the same when you are setting your prices? You may not make the money while you are on holiday but it helps ensure you have the money available to set aside so you can pay yourself while on holiday. Because the rent or mortgage will still be due, you will still have bills to pay and you want to have money to enjoy that holiday.
3. Not including all the work you do for clients
If you are a service provider and particularly a coach, it is easy to think you should only charge clients for the time you are working with them face to face. But this doesn’t take into account the time you spend preparing and following up with clients.
Your price should take into account all the time you spend working for your clients. This feels easier if a lot of the work you do is not through one to one sessions like coaching or photography. For example a web designer doesn’t charge just for the time they spend talking to their clients. They would never make any money if they did that.
Whereas coaches and other service providers like trainers find this more difficult to get their head around. But if you are reviewing information provided by a client or preparing to present a course then you need to be charging clients for this. It is included in the price.
One other time drain that can fall into this category is travel time, particularly if you drive and can’t work while travelling. I personally recommend including an amount for your average travel time in your price if you normally work with clients in person.
You may also want to add on an additional travel cost fee if a particular client is outside your normal area. If you are travelling for an hour to meet someone, it is time you can’t spend working on other parts of your business.
4. Charging by the hour
For most people I don’t advocate for charging by the hour. The best way to sell your services is to demonstrate the outcomes you deliver. When you charge by the hour, clients will often be thinking about the amount of time, rather than that outcome you deliver.
Rather than charging by the hour, you package things up so they explain the outcomes you deliver. Because in reality that is what people are paying you for.
You can still offer a package that is for say one hour of coaching but in your price you would make sure you factor in all the time you would spend on that hour. But more importantly you would make it clear on your website what else they get with that hour. It could be a self-assessment questionnaire, a follow up email, a recording of the session or a plan developed from the session. It is very rare that an hour of coaching is just that hour in terms of what you deliver to your client.
There are some industries where charging by the hour is the norm and it can be hard at least initially to break out of that model. Virtual assistants are a good example of this where clients expect to pay by the hour.
But even VAs can get to a point where they can move away from hourly rate packages because they understand their business and their client’s business well. For example, if you provide customer support as part of your services you may be able to quote based on the number of customers you are supporting. Some months you may lose because there are a lot of customer enquires but these should be offset by quiet months. Plus you have the opportunity to become more efficient so the support takes less time. You are rewarded for developing your skills and knowledge of your client’s business.
5. Only looking at your business experience
This is a big one that I have been guilty of. Feeling that because I was new to business I couldn’t charge very much. When in reality I had years of experience behind me that I was using to deliver great outcomes to clients.
When you are first starting out you probably can’t charge that extra premium price that is based more on reputation than experience. But that doesn’t mean you need to offer the budget buster option either.
Yes, you may want to offer free or low cost beta options to build a portfolio and to test out new services and how you want them to work (I do this myself). But it needs to have a very clear purpose and have a limit such as only offering 5 services at the low price.
Value the time you have put in to building your fantastic skills. For the most part the context you are using them in is less important than you think.
Underpricing can be a business killer. Underpaying yourself will lead to you feeling stressed and burnt out. Which is not why you created a business. You wanted a business that supported your life, not took it over.
I would love to hear if you have made any of these pricing errors and how you have overcome them. Send me an email at email@example.com to share your story.