The Price is Right…or is it ?
If you are busy constantly and appear to be making progress with sales per month, but your profit level and salary are not reflecting the ‘busy-ness’ each month or at the end of the year, then it’s time to stop and reflect.
Is your pricing structure right?
Reviewing what you want to earn per year and calculating what that is per hour (realistically) and to fit with the lifestyle you want, as a starting point. If you want a salary of upwards of €60k per annum and want to work five hours a day, as an example, you need to be earning over 52 euro per hour (for every hour worked). That’s taking into account 4 weeks annual leave and 2 weeks bank holidays here in Ireland. If you would like additional time off, the rate needed to be earned is obviously going up.
For those of us in the service industry or professional services, we’ve grown up with this model and it’s easy to use with experience. For many starting to understand where their time is going and why they haven’t seen the results they would like at the end of the year, this method of valuing your time can help greatly.
When you don’t see the bottom line impact (take home pay increasing or profits in your business at the end of the period), it can leave you feeling unmotivated. You will feel undervalued, question what you are achieving and perhaps even suffer burnout. When looking at your business from an accounting point of view, it may simply be that your pricing model is wrong.
When working with clients this past month, this issue came up more than once. What are the options available to you :
- Increase your prices
- Get the jobs done faster
- Change your offering
- Or a combination of all of the above
I get challenged by clients when I talk about their price structure. The only way we get to this challenging conversation is that they have mentioned how hard they feel they are working but not seeing the increase in profits. From there, it’s never really a ‘challenging’ conversation, it becomes a conversation about changing something. No-one I’ve met is 100% comfortable with change. When it comes to increasing prices everyone has the same fear – What if my clients don’t come back?
So we discuss the pros and cons of increasing prices for a short while but it’s Einsteins definition of madness – doing the same thing and expecting a different result. You can’t really argue with Einstein (even if you want to argue with me).
CHANGING PRICES – WHAT TO FOCUS ON
So you have decided you HAVE TO increase your prices, what are the next steps?
Make sure existing clients know why you are changing your prices and why. Don’t focus on you not making profit as a ‘poor mouth’ style conversation, but focus on what you need to do for them and how your services benefit them.
Re-design your offering
The advantage of being a small business is you can change your offering, your services or products a little without too much inconvenience. By rethinking your offering and packaging your service or products in a different way, you can change prices without too much direct comparison to the ‘old’ you.
Most definitely THE most important issue for all businesses is to ensure your offering is adding value to clients. If you increase prices without focusing on what is adding value to your product or service, you’ll face difficulty. Focusing on what’s important to clients and ensuring their needs are met and offering more than is expected or focusing on your one key differentiation point, will enable you to clearly communicate with clients exactly why your price structure is what it is.
If you continue to be busy without reflecting on what you want or where you are taking your business, then expect the same results for the coming years. If you want to make changes in your business, face the fear and do it anyway. Suffering burn out is no joke. Neither is working all hours, missing out on the most important parts of our personal lives and missing spending time with loved ones, if we don’t get the benefits we feel we deserve.
At every stage in our lives, careers, businesses, we have choices. Sometimes we need some time out with someone who doesn’t have a personal attachment to it. By having the tough conversations regularly, you can make lasting change in your business.
For more information or to contact Wendy – email firstname.lastname@example.org