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One of the most challenging parts of running a business, especially in the beginning, is putting a price value that’s fair, smart, not to mention profitable on the products and services we offer. It’s like, how do you even BEGIN to come up with a number that encompasses the time, effort, passion and strategy you’ve poured into your business?
I’ve found that there isn’t a one-size-fits-all structure to figuring out pricing. This can be SO hard and such a mind game, especially if you’re new to business ownership OR you’ve experienced a lot of change or growth recently. Emotions can sometimes take over where equations should be and it’s hard to know what value is actually warranted for the things you’re selling. Striking the balance between not swindling buyers, and also not cheapening yourself, is a super challenging tightrope to walk – but something tells me you’re up for a challenge.
This episode is a way to open up the conversation about price setting for entrepreneurs, and to share my own philosophy about running your numbers and figuring out what to charge. I’m going to chat with you about crunching your numbers, drilling into them to find a realistic dollar amount to charge, plus how to create a unique experience to back up your rates and my personal philosophy about how to approach discounts. But after this ep, your work’s not done — not even after you evaluate your numbers and come up with that magical dollar figure.
I remember the first time someone offered to pay me to take their photo. I’m pretty sure after that phone call, I got off the phone, danced awkwardly like I won the lottery, and then planned how I would spend my $100 dollars before I had even earned it (likely on new yoga pants). It got my wheels turning and made me want to dive head first into life as a photographer.
When you are just starting your career in whatever creative field you are deciding to dive headfirst into, it’s easy to think that those $100 bills are going straight into your pocket (if only yoga pants had pockets). The truth is, we often discount our time and talent, which are usually the biggest part of the equation. We are often so caught up in the whimsy and the fact that someone is actually willing to pay us that we forget about creating a sustainable and profitable business that will allow us to live the life we have been dreaming of.
We get stuck in a place wondering if we are even legit enough to charge the amount we are thinking of and we quickly let fear lead us to a place of questioning what to charge, what everyone else is charging, and comparing ourselves to other locals in the same creative field.
I remember scouring websites of other photographers for days seeing how much they charged and then trying to set my prices based off of what they were doing. The problem? Our situations, lives, talent, and businesses were incomparable. So let’s quit the comparison game and get to the heart of YOUR situation.
Where to Start
There are three simple numbers you need to know: Your financial need or goal, the amount of work or hours you’ll put in, and the number of clients or sales necessary to reach your goal.
First and foremost, you need a plan. It’s wild how much time we spend planning all the things but how often we forget to make a plan for money. So let’s start there… What does success look like for you? What would it mean to fail? If you did succeed, how would your life change? If you failed, what would your back up plan be?
In a world that is constantly shouting to chase and dream and do, it’s important to keep your feet on the ground and be smart. What do you need to do in order to feel like a success? What do you need to bring in in order to cover your rent or mortgage and put food on the table? Is making a certain amount of money necessary? What about your back up plan? How will you navigate the inevitable ebb and flow of owning a business? First, you need a plan.
Be honest with yourself, crunch some numbers, sit down with your parents, spouse, accountant, or financially wise friend and make sure that you have a plan wherever you are at in your business.
The first place to start is in defining that amount whether it’s your survival amount or your dream goal, start with that profit number.
Calculate Your Expenses
If you have yet to actually start your business, here is my biggest piece of advice: start now and do it right. I am so thankful that I registered my business, filed for taxes, got an accountant, and did all the scary legal stuff right away.
I personally have never gone into debt for my business — debt has always stressed me out and so I funded my business little by little using my 9-5 to help and my first year of profits were all reinvested right back into the biz while I had the security of my full time job. Remember that if you start at a deficit with debt, you will need to pay off that debt before you truly bring in a profit.
There are two kinds of expenses, fixed and variable expenses. Fixed expenses will be a part of every project or post or shoot regardless if you do 1 or 20. Examples of fixed costs include: supplies, equipment costs, web hosting expenses, insurance, etc. Variable costs are based on what kind of projects you are doing. Examples of variable costs include: travel, renting equipment, contracting assistants, packaging, postage, etc. These costs vary based on the scope of the project and will be different on a client to client basis
How to know what to charge
One of the biggest factors to business success is pricing your offers just right. I mean, it’s kind of like a mix between art and science picking the ideal number that will generate interest and, hello, sales to sustain your business and help you achieve your profit goals to keep on growing.
But pinpointing your pricing model isn’t easy work, and you will likely end up adjusting your rates over time as your business and financial goals shift, too. The biggest thing to remember is there’s no one standard approach to pricing for any type of business, industry, or product. While this simple fact opens up a lot of flexibility in the way that you set up pricing, it also opens the door to potential mistakes and under-or over-pricing your products or services.
That’s why it’s best to remember that pricing is an equation, not an emotion.
What I mean by that is this: I see so many people pricing their work based on industry standards, others in their area, people who offer similar products or services and while there’s nothing wrong with doing a little market research, your pricing should be a reflection of your need, your expense, and your experience that you are offering that only you can offer. So if you get tempted to price based on everyone else, go back to the equation and remove that emotion.
Pricing to Hit a Goal
Let’s be real: we all want to make money. The goal of owning a business is often two-fold in this way: we want to A) offer the world something we’re passionate about creating and B) create life-changing income by offering this product or service that we love. But the trick is making sure you are able to generate enough revenue from your offerings that you can cover the cost of running the business AND achieve your profit goals.
When I was a wedding photographer, I first started with my need which was to make 50k pre-taxes and to figure out how many hours I was willing to devote to make that dream happen. I looked at my own consumer habits mixed with my skill and level of experience and determined that I could charge $2,000/wedding and serve 25 couples in order to reach that ultimate goal.
Now I landed on this rate for a few reasons: each wedding took me about 60 hours to complete, from the 12 hour days of driving to weddings and shooting to the 40 hours of editing and 8 hours of the clerical and communication side of things.
I was making about $30/hour when I was charging this rate and at that price range I was able to attract and book the 25 clients I needed in order to hit my goal of matching my salary — now, keep in mind, I still had my 9-5 while I booked out that upcoming year, so I didn’t make the actual leap of faith into full time entrepreneurship until I knew that I had a calendar filled and enough work to hit that goal.
With each wedding season came more experience and with that experience came higher levels of work and what I could offer my clients and so with each season, I raised my rates to match my work and the experience I was offering to my clients.
I remembered a mentor once telling me that with each client you serve, you gain more valuable insight and skill, and that you should be charging more and so with every 5 weddings I shot, I incrementally raised my prices a bit so that each year I was charging about $1,000 more per wedding. I was able to command that price increase because my demand also increased with the added visibility of my work and the word of mouth referrals coming in.
Let’s talk about a simple economic principle that is supply and demand. A lot of times entrepreneurs start and they price themselves low just to gain experience. As they gain experience and begin serving clients — hopefully turning them into raving fans — and they build up their portfolio, they will likely be more in demand. If this has happened to you, it’s important to raise your rates so that you can maintain a level of service that you’re proud of.
Pricing and Experiences
You can’t just raise your prices without heightening the level of experience. While supply/demand is a great principle to lean on, it also comes with a responsibility on your part as you adjust your rates to meet that demand.
Price is NOT the sole factor in sales. You need to be able to drive sales and get people interested enough to land on your product or service page before they can even figure out if the price is right for them. Entrepreneurship is not a case of “if you build it, they will come” but more of situation like “if you build it and then talk about it and share it and put it out into the universe and market it and price it well, then, just maybe they will come”.
That’s why creating the whole “know, like, trust” factor is so important. Your brand needs to be showing up in your ideal audiences inboxes and on their social feeds with helpful insight, inspiration, education, or entertainment so that they can grow accustomed to who you are, what you’re about, and eventually, what you have to offer them.
So, how can you create an experience that endears and ultimately sells? It might be through exquisite branding with unique design and eye-catching colors, it could be with a boutique experience that you only offer for a limited number of clients, it could the approach you offer that’s unique from others in your industry, or your eye for detail that no one can match.
Let’s also talk quick about different payment plan options and how I’ve done it — again, my systems might not work for all of you but I’ll share just in case. One of the biggest things I want to do when I’m pricing is to make things as accessible and affordable for the right people while still protecting the value and my profits.
Payment plans have been an incredible way to make my programs more accessible while still protecting that value, giving people the chance to pay off a program over time. Now if you do opt to do payment plans, you’ll want to make them slightly more expensive than the one time investment because payment plans require more time on a monthly basis of invoicing, following up on the payment schedule, and there’s a greater chance for the client to not follow through or default on the plan.
For my courses, I always offer payment plans and then we actually have someone dedicated to our team that helps us recover payments. Check out Gravy for customer retention. I share more about it in this episode. Press play above.
How to Approach Discounts
My ideology about discounting your pricing is pretty straightforward: don’t do it.
All that number crunching, market research, and story building you’ve been doing to create the perfect number that sells to your audience? Yeah, its based on an equation, right? The moment discounting is brought to the table — it becomes emotional.
When offering a discount, you’re cheapening yourself AND this process if you lower your rates for discounts. If you ran the numbers right, set the right goals, and calculated your hourly rate that made sense, then your prices need to be your prices — you need to charge them to stay in alignment with your bigger vision.
Your prices are what pay your business’s bills — heck, they probably pay your personal bills, too. They’re strategically built to cover your costs and create a realistic profit that’s meant to enhance and grow your business, so when you slap a sale on them, which part of your business are you choosing to cheapen? Your time? Your expertise? The value of your product?
If you think of discounts like that, it makes a whole lot more sense to just focus on coming up with the BEST number for your prices, and then focus on creating that experience that will endear your customers to you long-term. Now, I’m NOT saying you shouldn’t offer up deals for your customers or audience ever. I’m just saying do it a bit differently than giving 25% off your products and services for Black Friday for absolutely nada in exchange.
The Big Picture
I know pricing and money in general is a hot topic that can be intimidating, frustrating, and cumbersome. But when you think about it… Your time is precious. I always say time is our most prized resource. Unlike money, it isn’t renewable or expandable. We can’t just change the time or set it back or make up for the lost bits of it.
Money, on the other hand, we can work with to make it make sense for our business models and goals. And the best part about entrepreneurship is that it’s a whole lot of figuring stuff out until it’s figured out. You might not hit the perfect price on the head right away, but then you’ll review, adjust, and pivot. Ultimately, only you can decide what your time and efforts are worth. And that’s a pretty awesome position to be in, if you ask me.