Can we please talk about money?

Let's talk about money, baby.

When you set up your business one of the hardest aspects is working out the pricing. That whole damn money thing!

I mean, how are you supposed to work this out when no-one wants to discuss money or share thoughts on how they worked out their pricing?

FB Groups tend to avoid talking about price because they worry about accusations of 'price-fixing'.

Well here's the thing.

Unless you are collaborating with your peers to price other people out of the market, agreeing on pricing together rather than working out your own pricing, or fixing prices across the board to reduce competition, chatting about pricing is not price fixing. Visit the ACCC for more info.

So let's talk about money.

We all know that running a lemonade stand would be completely different to running a café, and the same goes for all businesses who are determining whether they are a short term venture or sticking around for the long haul.

Short term ventures have limited overheads. They don't need to keep learning, building their community, marketing, employing others for support or purchasing equipment to ensure quality delivery of goods or services. They want to make a bit of money now - not invest in a longer term return. So they can price their offering as a quick and easy option for their clients with no concern about what happens tomorrow.

I think it's a big myth that service based businesses have low overheads. Of course they don't have to purchase a product or parts to then sell, but their service requires them to learn, create, mold and deliver the product in the form of a service, and there's a lot of work, time and money that goes into that.

How can they deliver the service if they haven't learnt how to do it, learnt how to deliver it to someone else, learnt how to manage the aspects of running their business and also how to keep improving on their service offering? They can't. And this is where pricing comes into play.

You cannot price a service based on what it costs you TODAY to deliver it. 

It's about all the work that went into becoming an expert, setting up the offering as a deliverable outcome and on ensuring that your business has all of the tools and resources required to ensure the outcome is actually achieved.

It's also important to consider the future. Do you want to keep offering this outcome?
If so,

  • What equipment is required?
  • What do you need to learn or outsource?
  • Who do you need to collaborate with or learn from?
  • What are your financial and structural obligations to your government?
  • What will happen if something unexpected happens?

There are a lot of costs associated with the 5 questions above. And if you want to stick around and deliver a great service you need to be considering all of those aspects. And then you want to be able to make a profit too!

Unless you are a registered not-for-profit organisation, you are running your business to make money. Ideally you'd be benefiting from doing something you enjoy and helping people with something you think is important as well - but without the profit, you wouldn't be able to keep doing it. So profit is important.

The amount of money you want to walk away with depends on you and also depends on how valuable your service outcome is to your ideal client. At the end of the day, if it's not considered valuable, people won't pay much for it. But if the solution IS valuable to other people then you can walk away with more money. It's not that complicated. The lower the value, the more you have to sell and the more complicated the logistics. So high value is definitely better.

So what is your outcome worth? Not to you; to your ideal client? What are they willing to pay?

Remove from this amount all of the costs associated with managing a long term business and this is your profit.

So yes, you need to do the math. Don't just pull numbers out of the air. Don't just work for the price set by someone who doesn't value the outcome.

Find the ideal client.

Support the hell out of them at the best possible price.

Don't settle for less.

You can work out what you need to charge per hour (doesn't mean you need to package in hours, this just gives you a guide on what you need to earn per hour) to meet your financial goals using a pricing calculator spreadsheet. But that's not enough on it's own. You need to do some research.

Find out who has the pain that you ease. Who needs you the most and what that solution is worth to them. Test and measure. Know your client and know your solution.

You don't have to get it all right straight from the start but we never do in business anyway. It's all about testing and measuring and then learning and adjusting.

But to get started you need to PICK SOMEONE, think who MIGHT need what you have to offer and see if it flies. See what happens. Aim for the stars.

The worst thing you can do for your business is to settle for low pay with clients who are easy to find. Cheap clients are everywhere. They are not hard to find and they are not going to help you reach your financial goals. So don't aim low - aim high.

Keep learning, keep connecting, keep trying and keep growing.

Grab your pricing calculator spreadsheet here. If you want help working out your ideal client, have a look at our Stellar VA Course options and see what would work best for you.

Happy business adventures!