Are you a service provider, consultant, or solo-preneur and struggle with how to set your pricing? Then this is for you.
The challenge most service providers have when they first get started is they fall into the cycle of:
Well I could not afford to pay that much…. Therefore no one else can….. Therefore I can only charge so much…. Or no one will buy from me… or people will think I am greedy…. Or worse… that I don’t deserve to charge that much!”
The problem with this way of thinking is that you are setting yourself up for failure right from the beginning.
If you want to create a viable, successful, business you need to start thinking like a business owner… and not an employee.
All of your business expenses can be divided up into one of 6 categories. When you are trying to decide how much to charge, you should consider all of these “hidden” costs and set your prices accordingly.
Although I can’t tell you exactly what to charge as each business is unique, if you assign a percentage of your fees to each of the six categories, you will be on your way to creating a business that can be scalable.
The six categories are: Executive, Client Success, Marketing, Business Development, Operations, and Project Management.
Depending on your type of business, your categories may vary as well! A massage therapist for example may not have Project Management but would need a category for her employees or independent contractors.
So what types of expenses go where?
Executive
- Percentage of profit off the top for owner draw and salary
- Continuing Education for Executive Staff
Operations
- Software
- Phones
- Rent
- Computers
- Accounting / Bookkeeper
- Lawyer
- Taxes
- Merchant Account Fees
- Bank Fees
Client Success
- Customer Service
- Customer Gifts for Birthdays and Christmas
Marketing
- Cost to acquire a new customer
- Website Design
- Email Marketing
- PPC Campaigns
- SEO
- Video Marketing
- Social Media Marketing
- Marketing Training and Education for Staff
Business Development (Sales)
- Cost to close the sale
- Sales Reps Commissions
- Affiliate Commissions
- Referral Partner Program
- JV Manager
- Sales Training and Education for Staff
Project Management (Contractors, Employees)
- Cost to fulfill your service
- Independent Contractors
- Writers
- Social Media Managers
- Community Managers
- SEO Specialists
- Project Manager
- Team Leader
If in the beginning you are doing all of the work, then you would be paying yourself the full amount you allocate in “project management”. Just take into consideration that if at any point in the future you want to grow your business, you will have to duplicate yourself. The only way to do that is if you can hire someone else to take on the work for you. You should set your pricing so that at any time when your sales justify it, you can hire someone and train them to do the work.
A business owner has two jobs: Increase Revenue and Implement Systems.
You should be working ON your business and not IN your business to make it scalable!