On this week’s Money Monday post, I answer Ashley’s question: How do I price my services?Read More
A few years ago, I was introduced to a woman who was building a branding consulting business. We’ll call her Katherine. She was going through a tough time in her personal life. In the middle of a divorce with her husband of fifteen years, which left her in a financial strain. A strain that caused her, and her two kids, to move from a 30,000 square foot home in Beverly Hills to a 800 square foot apartment in the Bay Area.
After years of relying financially on her husband, Katherine was now in a position where she could not support herself.
For the last several years, she had worked at non-profits. While the causes were dear to her heart, the non-profits were not in a position to pay her a decent salary. but had not been generating an income for herself. Prior to marrying her husband, she had been an attorney in New York and had a brief career working for a branding agency. After applying to several agencies in the Bay with no luck, she decided that the best next step for her was to hang out her shingle as a consultant and tap her network of contacts for clients. She was getting traction for potential consulting opportunities, but for some reason had a hard time closing the deal. Or she would close the deal, but wind up doing it for free.
I remember being in that position of giving away my services for free and know, first-hand, that it is a fast-track to burnout.
A mutual friend of ours suggested that Katherine reach out to me. We met up for mimosas at the Rooftop restaurant in Walnut Creek, California.
After a few minutes of getting to know each other, we jumped into chatting about Katherine’s branding business.
“So, how are things going as a consultant,” I asked.
“It’s ok,” she said. “I’m really good at getting in the door. I’ve great connections at large companies because of my non-profit work. But, I have a hard time getting paid.”
After asking her a few more questions, it was clear to me that Katherine lacked confidence (the biggest skill you need to be a business owner) and a structure for pricing her services.
The advice I shared with her about confidence will be another blog post. For this article, we’ll focus on answering the big question that many service based business owners have, which is “What should I charge for my services?”
As a service- based business owner, one of the most challenging tasks is accurately pricing your services.
Unlike product based business who have a fixed cost and then add a % above that to determine their price, you have to account for your time and expertise.
First things first, when a potential client asks this question, take a deep breath. You don’t have to share your prices in the conversation if you do not feel comfortable doing so. When you state your price, you want to come across as confident. The worst thing you can do is stumble over the first random fee that pops into your head. Because person on the other side of the phone will feel your hesitation and will begin to doubt if you are the right person for the gig.
Secondly, you want to ask them two clarifying questions to better understand their perspective.
“What is the budget you’ve allocated to this project?” If they haven’t given it any thought, ask them to give you a ballpark range.
“What is the timeline that you want this to be delivered?” If it’s a quick turnaround, then you will need to charge a higher fee.
If the project is under $2,000, you should feel comfortable stating that on the phone. If it is over $2,000, let them know that you will be putting together a proposal that you will send to them within the next five business days.
One of the most common misconceptions I hear from service-based business owners is that they don’t have an overhead. They think that it doesn’t cost them any money to run their business. But your time is valuable and it needs to be compensated.
In addition to your time, there are five key factors that need to be considered. These factors should not be delineated in your proposal. They are merely to help you calculate your total fee.
Your savings and investment. When you worked for a company, your retirement savings was usually matched. Now you have to cover that yourself. If you are saving for a home or to start a family, this should also be included. Be sure to include this in your calculation.
Expertise. The amount of time you’ve invested in honing your craft is saving someone else the time from learning it. And time is money. Plus, your execution will be far greater than theirs because you are solely focused on developing this craft.
Tax payments. Depending on your home country, you should plan on paying 15- 40% of your earnings in taxes.
Healthcare. You are now responsible for covering your insurance costs and this needs to be included in your fee.
Your salary. Don’t forget that you deserve to get paid, too! All the money should not go back into the business, some of it should go to you. Otherwise, you’ll be on the fast track to burnout.
Once you have calculated the above factors, summarize it in a proposal to the client! And don’t forget that you will want to have a business account ready to accept your payment.
Check out Radius Bank’s Business Tailored Checking! It’s made for the small, independent business owner (like you, Katherine and me!). And you will earn 0.75% on balances over $10,000.
For more tips on how to lead a financially independent life, sign up for my weekly Money & Mimosas Insider list.