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Pricing Strategies: How Much Do I Charge for My Service?
Donna Gunter
"I'm not sure what to charge my clients" is one of the most common refrains I hear from new online service business owners.. It's a problem that plagues even the veteran business owner as she becomes more aware of her competition and what monetary value her skills hold in the marketplace. How do you decide how much you're going to charge? Here's the bottom line --
you have to charge enough to be able to sustain yourself in business. Make sure
that you're a "true" business owner netting a decent take-home pay each month
without depending on savings, another job, or a spouse's income to make ends
meet. This rate easily enables you to pay for your overhead and business
expenses, ongoing professional training and development, and benefits you had
while working for someone else -- things like vacation time, health insurance,
life and disability insurance, for starters. And remember, you'll need to factor
in what you'll pay in self-employment taxes and state income tax (as applicable)
and pay those as scheduled to prevent the tax man from knocking at your door.
When you determine your rate, realize that if you're billing hourly, you'll
probably only bill 20-30 hours per week, rather than 40. Why? Because you're
running a business, which means that you'll spend part of a day engaged in
non-billable tasks, like marketing activities, meetings, consults with
prospective clients, lunches with friends, etc.
If you decide to use pricing as a strategy to undercut your competition by
charging less than everyone else, in the long run you're not doing yourself or
your clients any favors. You'll soon discover that your low prices make it
impossible for you to afford to stay in business after the first year. This
means that you've put your clients in a bind, as they have to go now and find
someone else to provide the service for which they hired you. Ultimately, this
low pricing decision will probably result in you closing the business and
returning to work for someone else, as you need some income to pay the bills as
they arrive. So, who's won in this scenario? I frankly don't see any winners
here. In the long run, low pricing strategies only work for high volume
businesses and make service business owners go out of business quickly.
"Emotional price points" are another key issue that will frequently hold an
online business owner hostage. A service business owner will set a price that
she'd like to charge, but in her heart of hearts, she truly doesn't feel she's
worth that rate. How can you "convince" your inner critic that you're worth what
you need to charge to make a decent living? Play around with your pricing
structure until you've found a rate that you can comfortably discuss with
potential clients without stammering or stuttering. Trust me, if you don't
believe you should be charging what you say you charge, potential clients won't
believe it either. And, if that price point falls below that minimum standard
that you need to be successful, seek the counsel of a business coach, friend, or
colleague for support. You deserve to make a decent living and be successful in
your business, but you have to be willing to set yourself up for success to make
that happen.
If you still have difficulty with this concept, here's what John Ruskin, a very
successful Victorian-age entrepreneur said in 1890 about this subject: "It's
unwise to pay too much, but worse to pay too little. When you pay too much, you
lose a little money -- that's all. When you pay too little, you sometimes lose
everything, because the thing you bought is incapable of doing the thing is was
bought to do. The common law of business balance prohibits paying a little and
getting a lot -- it cannot be done. If you deal with the lowest bidder, it is
well to add something for the risk you run. And if you do that, you will have
enough to pay for something better."
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