Self Employed Success

There is a delicate balance between the fee you need to charge for your products and services, and the fee that people are willing to pay for them. But with gasoline, heating, shipping, health care, and other costs rising, there comes a time when you must raise your rates in order to remain profitable.

Most people see their own costs going up and won’t be surprised that you’re raising your fees, too. With proper communication about it, you should be able to raise your fees effortlessly.

Here are some tips on how to go about it:

• Don’t let fear and limiting beliefs stop you from raising your fees. If you hear yourself making excuses that you know are not true, it’s probably your fears and limiting beliefs raising their ugly head. Some of these include, “All my customers will leave if I raise my rates,” or “I’m not worth the new rate.”
• Have a clear idea of where your break-even point is, profit-wise. It’s not just about what you “need” to make, it should be about what you “want” to make, too. Decide how much money you want to bring into your personal life from your business and how much cash flow you want in your business to float new ventures. Think big; don’t keep cutting your goals just because you feel uncomfortable with big numbers.
• Base your fees on what the benefits and results of using your product or service are worth to your customer. For example, as a small business consultant and coach, I help people increase revenue and profit in their business. This has a value to self employed small business owner, and my fees are based on that value. If you can solve their problems, and if the problem is important enough to solve, then they’ll pay you an appropriate fee for that solution.
• Base your fees for services on your level of expertise. If your expertise level is high, if you’ve put in many years of study and have lots of experience, you’ll be able to charge higher fees than someone just starting out. Because of this, you might consider raising your fees annually as your skill level and experience grows.
• Check your competitors. Are there people out there, with your same skill level, charging more than you do? Why do you think you’re still undercharging?
• See if your product or service is a “commodity.” A commodity is a product or service that is the same, regardless of who is offering it. If you’re selling a gallon of milk, it’s the same gallon of milk that your competitors are selling. In commodity pricing, there’s no room for differentiation in the customers’ minds, and customers will be looking for the lowest price. So if you have a class called, “Copywriting 101″ and your competitor has a class called, “Introduction to Copywriting,” your customers will see these two classes as the same thing: a commodity that can be purchased in a number of different places, therefore price becomes the only differentiating factor. However, if your product or service is unique, or your skill set and experience are different and better than your competitors, then you can charge more. You’d pay more for Oprah to teach you how to create your own TV show empire than someone you’ve never heard of. Bargain basement prices often scare off potential customers because they think your product or service is a commodity they can find anywhere. Use good marketing, branding and copywriting to differentiate yourself from your competitors.
• Decide in advance whether you’ll raise fees across the board, or only for new customers. Even if you raise fees only for new customers, there may come a time when existing customers will need to have their rates increased, too. Make a strategic decision about when you’ll raise your fees and for whom.
• Do the 80/20 evaluation. Find the 20% of your customers who bring you the least profit and either raise their rates or get rid of them. This may sound harsh, but you’re in business to make a profit and you can’t carry an unprofitable customer just because you like them. Refer them out to someone who can serve them at the fee the customer is willing to pay.
• If you will be raising your fees with existing customers, it’s a good idea to call them or write a letter, explaining that the fees will be going up to the new rate, and giving them a date when this will happen. I recommend giving them at least a two month notice. Will you lose some customers who aren’t willing to pay the higher rate? Yes. But if you do, then you need to ask yourself, “Why hasn’t this customer found value in what I’m offering so that the new rate was still acceptable to them?”

This is the perfect time of year to look at your pricing model and make changes. Take a few hours and decide on your new fee structure, dates for change-over, and communication avenues.

Earlier this month, I received the infamous Netflix email, telling me that they were increasing fees and separating their streaming package offering from their DVD-by-mail package offering.

I read the rants by infuriated customers on Facebook and Twitter.

But there was one glaring mistake that Netflix made that could have circumvented the whole drama: they should have told us WHY.

Social psychologists have studied this phenomenon: when you tell people why you’ve made a certain decision, why you’re asking for a certain favor, or why the traffic is backed up for 10 miles, they accept it and it decreases their anxiety about the situation. When you don’t keep them informed, they resist change.

Netflix, in later news reports, indicated two reasons why they changed their pricing:

• first, because the cost of streaming those movies has gone up compared to what they used to pay (a nine-fold increase over the same time last year),
• second, less people are choosing the DVD-by-mail route, seemingly preferring the streaming option (75% of new subscribers choose streaming-only).

Of course, they didn’t tell us that when they sent the email a few weeks ago. They only talked about it in an earnings call in late July.

When you look at their reasoning and their statistics, as a business owner you can see that it makes perfect sense to split the DVD-streaming combo into two separate offerings. Even a non-business-owner would have “gotten it.” But by not telling us in the first email they sent, they allowed imaginations and emotions to run wild. Stupid, stupid PR mistake.

A lot of business owners didn’t raise their fees during the Recession because of the backlash that would have arisen. NOW they’re thinking, “Hey, I haven’t raised my fees in 3 years.” Just tell your customers why your’e doing it.

Next time you’re cancelling a class or changing a program offering or moving a project start date, make sure you tell your customers why. It will save you a lot of headaches and backlash later.

Are you a:

• coach
• speaker
• consultant
• teacher
• teleclass leader

If yes, you’ll want to hear what Katherine Scott has to say about your voice. Katherine is a voice coach who helps people realize the true strength, the true authenticity, of their voice.

Katherine has been a guest on our free monthly teleclass and you can listen to the recording for free here.

http://www.passionforbusiness.com/teleclass/katherine-scott.htm

Don’t just charge what your competitors charge.

Don’t just charge the lowest price.

Instead, do the math.

Here’s how…

1. Determine What You Need To Make

Part of the calculation in setting service fees is how much you need (and want) to make. If you first decide how much profit you need to make, you can then determine what to charge in order to make that profit. It’s necessary to do a personal and family budget first, to determine the minimum you need to bring into your home each month.

In addition to that minimum, add the amount you’d like to make, that would give you the lifestyle you want. You need to have a goal of the full amount you want to bring home each month when you have a successful business. While income isn’t the only measure of success, NOT making enough money in your business will bring frustration and dissatisfaction.

So take time to dream a little. If you could earn as much money as you ever wanted, what would you spend it on? Maybe you’d send the kids to college. Or go to Paris. Or tuck it away for retirement savings. Or give to your favorite charity.

2. Research Your Fee Options

First, examine carefully your skill level. It is common practice in business to charge based on skill. The more skill and experience you have, the more you charge.

You have several choices on how your services will be billed:

• per hour
• per session (regardless of how long a session lasts)
• per month
• per project
• per “program” (you define what the program includes and how long it lasts)

Next, find out what others are charging for similar services in your industry and location. You may have a difficult time getting clients if you set your fee at $100 per hour when other providers in your area are only charging $60 per hour, unless you have more experience, are more well-known, or have a unique offering that is different (and better!) than your competitors.

One interesting note is that you often can charge much more in big cities than anywhere else: in the suburbs you might be able to charge -$75 an hour and in New York City charge $150 a hour. And even within a city, you might be able to charge more in exclusive neighborhoods than middle-class neighborhoods. Keep your eyes open to the subtle differences in pricing structures all around you.

Look at your target audience. Are you trying to reach high-income people or is your target somewhere else on the spectrum? Are you intending to sell to corporations? Knowing your ideal target client can also impact your pricing model.

Ask others in your industry what they charge. It is not collaboration or price-fixing to simply inquire as to industry norms. Ask your attorney if you have concerns about enquiring within your industry about pricing.

Another consideration is how much your education cost you. As an example, some massage therapists can spend $4,000 to $6,000 to get their certification. These education expenses, as well as other business expenses, need to be figured into the mix when setting fees. You’ve got to recoup those expenses and make a profit, too!

Finally, decide if you will offer discounted fees and how you will apply them. Some people create their fees on a sliding scale, based on what the client can afford. Others offer either full fee or free sessions, with no discounting in-between the two extremes. Some take one or two free clients per month as a way to give back to the community, or offer discounts with a deadline attached. The choice is yours.

3. Determine Your Payment Policies

Decide if the client must pay in advance, over time, or after the work  is complete. If they pay for your entire month/program/project in advance, will there be a discount?

Also decide if you will offer a discount for early payment of invoices, say a 5 percent discount if paid by a certain date. This encourages those clients you invoice to pay their bills early, thereby giving you earlier access to your cash.

Finally, if you will be invoicing clients, determine how much time they have to send you the payment. Typical time periods are 15 days or 30 days after the invoice date. You must be willing to be assertive in collecting past-due accounts and be firm with people who don’t pay on time. For example, if your policy is that payment must be received in your office by the first day of the month, consider warning, then firing, clients who habitually are late in sending in their payment.

EXERCISE – How Many Sessions Do I Need To Do?

For this exercise, you’ll need a piece of paper and a calculator.

1. Calculate the income you need to bring into your home (after taxes and expenses) so that you’ll have a comfortable life. Don’t short-change yourself here; be honest with what you really need and want.

2. Add 30-35% to that number to figure out the gross income you’ll need. This covers taxes and expenses. (Adjust the percentage if you will have an unusual number of expenses.)

3. Determine the fee you’ll charge for one session (hour/program).

4. Divide your total income by the per-session fee to calculate the number of sessions you need to do in a year.

5. Now divide the yearly sessions by 12 to determine how many you need to do per month.

6. Assuming you’ll work an average of 20 days per month, divide the total monthly sessions by 20 to figure out how many you’ll need to do per day.

For example:

1. Desired Net Income: $35,000

2. Plus 30%: 35,000 x 1.30 = $45,500

3. Per Session Fee: $60

4. Number of Sessions per Year: 45,500 / 60 = 758.33

5. Monthly Sessions: 758 / 12 = 63

6. Average Daily Sessions: 63 / 20 = 3.15

In this example, you would have to do between 3-4 sessions per day in order to reach your annual profit goals.

Your Calculations: Do The Math

Net Income:

Plus 30%:

Per Session Fee:

Number of Sessions per Year:

Monthly Sessions:

Average Daily Sessions:

Now, look closely at that final number. Can you physically and emotionally do that many sessions in a day? What about the time you need for administrative and marketing work?

For instance, if each session is one hour in length (with 15 minutes of rest time in-between sessions), do you have enough time and energy to do that many sessions?

Final Thoughts…

There more involved with setting your pricing and payment policy, but these tips should give you a solid foundation. In the next issue of Self Employed Success, I’ll give you some tips on raising your existing fees.

Until then…be happy, be prosperous, be ambitious for the sweet life.

Comments?

So, what did you think of this post? Did you find it helpful? Do you like these longer, meaty articles or do you prefer shorter ones? Let me know what you think!

As I sit here writing my “to do” list for the upcoming months, I can feel that weird little tingle in the pit of my stomach: Overwhelm. There’s so much to do! How will I get it all done?

Then I remember all the tricks and tips I’ve learned over the years of how to manage entrepreneurial overwhelm:

1. Breathe. Stop whatever you’re doing, and take several deep breaths. Close your eyes and take a visual and emotional break from the craziness.

2. Get Organized. Write down your “to do” list all in one place (instead of having all those little Post-It notes all over your desk). Next, write a priority next to each item on your list. Is it urgent (“U”)? Is it Important But Not Urgent (“I”)? Is it something that has to be done this month, or can it wait until next month?

3. Get Help. Look at your list and determine if everything on it must be done by you. Don’t fall into the trap of “Oh, it will take me longer to explain it to someone than to just do it myself.” Instead, think of the “explaining time” as an investment: once you explain it one time, the other person can document the procedure and repeat it over and over again.

4. Action Alleviates Anxiety. Pick one high-priority task on your “to do” list and do it. Nothing relieves stress better than getting off your butt and taking action. Don’t fall in the trap of picking a low-priority task just because it’s easy. Do the things that matter.

5. Just Say No. Look at your “to do” list and ask yourself if you can simply say No to any of these tasks? Remember, you are in control of your task list and your calendar. Only you can overbook yourself, so only you can say No to requests for your time.

6. Focus. Avoid the temptation to multi-task and choose instead to focus solely on the task in front of you. If you have to, set a kitchen timer and tell yourself you’ll work on the task for 15 or 30 minutes without taking a break or doing other work.

I think I’ll start by taking a nice long breath…