How to set pricing

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Frau im Bro - Arbeit in der Finanzbuchhaltung

 

I know. You don’t like to talk about your money. And you don’t like to look at it, either. It’s so much easier to just keep doing whatever it is you do to make money than it is to peek at your actual business finances, to get a picture of whether or not you’re really profitable. It’s icky, and you don’t want to look because you might not like what you see. Besides, you don’t really know what you should be looking for, and who has the time to dig into stuff like that?

So you don’t look. You don’t tally things up. You don’t analyze your pricing to figure out if it’s high enough, or if you’re giving away the store. You turn your head away and look for the next project you can bid on, the next referral you can follow up on, the next cool mailing you can do, or the next networking event you can attend. Maybe one of those will pan out and you can get some new business, and keep the money coming in.

And then you won’t have to look at the money you’re making, and whether or not you’re actually profitable.

MARKETING IS GOOD BUT LOOKING AT YOUR MONEY IS BETTER

Following up on leads and marketing your business and all of those things are important and good and yes, you should do them. But not at the expense of looking at your money and analyzing your pricing. You need to look at your money–if for no other reason than to assure yourself that you and your company are sturdy enough to be around tomorrow.

I know because I didn’t like to look at or talk about the money in my business, and I ignored my money, too—because it made me feel icky to think that I might not be doing it right. I didn’t like the money conversation with clients and I wasn’t at all sure that what I was doing was worth what I needed to charge for it.

Until I found a different way of looking at the money in my business.

WHAT YOU PUT YOUR POSITIVE ATTENTION ON GROWS

“You become what you think about most of the time.” —Earl Nightengale

You probably know by now that your life follows your attention. If you put positive attention on your kids, your relationship with them grows. If you put positive attention on your spouse, that relationship grows. If you put your positive attention on your dog, your dog’s behavior changes and grows better. Even plants respond to positive attention, growing stronger and healthier under your care and the time you spend with them.

Money is no different. Start looking at it, start paying positive attention to what money is doing in your business, and it will start to move and grow. Grouse about it, get mad at it and neglect it, and your money will wither up and die—just like your other relationships.

YOU CAN BALANCE THE ENERGY OF MONEY WITH PHYSICS

Let’s think about what money really is. Money is a tool. It isn’t good and it isn’t bad, it’s neutral. It’s a way to exchange value, a way to trade. And it’s a form of energy. (Hang with me here, this is going to get you where you need to go. I promise.)

If you think of everything in your life as energy—and science has proven this to be true—then money is no more valuable than anything else. It’s just a symbol of something else, really—it represents the value you place on it.

It isn’t icky to look at or to talk about or to earn.

NEWTON’S THIRD LAW CAN HELP YOU TAKE THE EMOTION OUT OF MONEY

There’s a law of physics, Newton’s Third Law, that states:

“For every action, there is an equal and opposite reaction.”

That’s what keeps energy in balance.

According to Newton, whenever objects A and B interact with each other, they exert forces upon each other. When you sit in your chair, your body exerts a downward force on the chair and the chair exerts an upward force on your body. There are two forces resulting from this interaction—a force on the chair and a force on your body. These two forces are called action and reaction forces and are the subject of Newton’s Third Law of Motion.

YOU AND YOUR CLIENT ARE EXERTING FORCES

When you do a service or a project for a client, you are exerting your energy for that client. This action could be the first of the two forces. In turn, there has to be an equal and opposite reaction to the energy you are exerting—which in this case would be a reaction from your client in the form of payment and appreciation.

These two opposite forces have to be equal. It’s a law of physics.

When they’re not equal—when you’ve underbid, and you feel you’re not getting paid for the value of your service—you feel icky and uncomfortable. You don’t want to talk to that client and you don’t like the project anymore. It’s because you’re out of balance with the energy of the universe. You’re giving more than you’re getting, and that makes you and your client out of balance. The forces are out of whack and you feel like you’re going to fall over or get squashed—just like when anything else is out of balance.

BALANCE THE FORCES BY GETTING YOUR PRICING RIGHT

You can balance the forces by making sure you’re charging correctly. When you’ve set the right pricing for your service or product, the energy you feel levels out. You are getting back the energy you need to replenish what you’re expending in service to your client, which helps to take the emotion out of looking at your money. You know you’re profitable because you are in balance.

Try this three-step process to set pricing without feeling icky, and get paid what you’re worth.

1.) Do the math

Even if you don’t bill by the hour, figure out what your new program would be worth if you did bill by the hour. For example, if you want to add a new catering service where you’d visit customers in their homes two days per week and cook them dinner and you want to set pricing for this service, compare it to your existing service where you cater anniversary parties for $500. (I am just guessing for this example, I have no idea how much a caterer would charge for this.) If it takes you 10 hours to plan for, shop for, prepare, serve, and clean up after a party of this type (not including food and supplies, we’re just talking labor hours here), you can use an hourly rate of $50/hr for this part of the exercise, even if you have never quoted anyone a price of $50 per hour. This is just for us to have a number to work with based on a known service.

Anniversary party for $500 / 10 hours total work = $50 per hour

You can then use this number to come up with the first part of our pricing exercise, by multiplying $50/hr by the number of hours you think you will be spending for your new service, cooking dinner two days per week in clients’ homes.

Client home dinners (2) = 1 hr planning, 1 hr shopping, 3 hrs preparing, 1 hr cleanup = 6 hrs x $50 = $300 for this service

2.) Check what the traffic will bear

Now that you have an idea of what this service should cost based on the pricing of your existing services, ask yourself, would my clients pay this amount for this service? While $500 may be reasonable for an anniversary party, is $300 per week reasonable for two meals prepared in their home by a private chef? It may or may not be, depending on your client base. Only you can answer this.

If it seems too low (and sometimes it will), you can always raise it to what you think your clients will find reasonable. Remember, perception is reality, and if you price your service too low, people won’t value it.

If it seems too high (and sometimes it will), you can think about adding something to it (could you also whip up side dishes or desserts as extras while you are preparing the main course? How about sandwiches for lunches?). Or, maybe the new service isn’t a good idea, as it can’t be priced low enough to make sense. You can’t go lower than your math tells you to—after all, you’re already making that basic $50 per hour on other services, and you don’t want to cut your profits. Find another service to offer where you can make the same hourly amount, even though we all know you are not charging by the hour (because you’re charging by the service or program). Or try to book more anniversary parties, because you already know they’re profitable.

3.) Check your own ickiness meter

After you feel you have a good price based on the math and what the traffic will bear, ask yourself how you feel about the price for this service, program, or product. Will you feel good making this amount doing it? Or will you feel icky? Is it enough to get you excited? There is no real reason to begin a new service or program that you don’t feel excited about, including feeling excited about the profitability of it. Business is all about the exchange of goods and services for a profit.

YOUR CLIENT TAKES HIS CUE FROM YOU

It’s up to you to balance the energy of the money exchange in your business so you get paid what your work is worth—your client can’t know this and will assume you have priced your work to make a good profit. Often, clients are unaware of what is involved in the work you do and are happy to pay for what they understand. By sticking by your guns with pricing, you may find your clients appreciate the high value of your work.

The next time you start to feel icky about the money you are receiving from clients on certain aspects of your work, remember to check the balance of energy in your pricing. If your pricing is right, you’ll feel good about looking at your money. And if your pricing isn’t right, now you know what to do about it.

 

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