Pricing Your Services
Pricing your services might be one of the most challenging, and important aspects of running your business. After all, it’s your skills, interests, and values that made you a business owner, not a thorough understanding of accounting principles and economics. But knowing how much to charge for your services can make the difference between success and failure.
While I would never recommend a one-size-fits-all approach to pricing your services, there are basic pricing strategies you can follow to help you determine how much to charge your clients.
How Much Does It Cost to Run Your Business?
The first thing to consider when determining how much to charge for your services, is how much does it actually cost to run your business. Create a list of all business expenses, ideally over the course of a year. These expenses are your typical, and consistent expenses such as rent, insurance, office supplies, and software subscriptions. This list might also include salaries you pay to employees, or payments to contractors. Don’t forget to add taxes to the list, as well.
How Much Do You Need to Earn from Your Business?
Next, look at your personal salary or owner’s draw that you need to earn or take out of the business each year to support yourself. If you are in the early stages of your business, this number might be the bare minimum of what you need to survive until you build up your clientele. Once your business is more established, this number might represent what you’d ideally like to make each year to support your desired lifestyle.
How Much Do You Need for Business and Personal Savings?
Finally, consider how much money you would like to set aside for both business and personal savings. As your business grows, you will have additional expenses along the way that aren’t part of your day-to-day operations, but are needed to finance growth. Examples might include getting a new website, updating your brand portfolio or photography, investing in software, or hiring additional staff and/or contractors for future projects.
Aside from business savings, keep in mind that most self-employed individuals miss out on the retirement savings they could get as an employee of another company. Therefore, it is important to be disciplined about setting aside money each year for your personal savings and retirement.
Determine Your Revenue Goal
Once you have added these numbers together (expenses, personal salary or owner’s draw, and personal and business savings), the total number represents an approximate annual revenue goal for your business.
Now that you know how much you’d ideally like to earn each year in your business, you can equate that number to how many clients you can serve over the course of a year. In other words, if your annual goal is $100,000, and you have the capacity to serve 50 clients per year, you know that each client would need to generate, on average, $2,000 in revenue per year.
Of course, every client is different, and the services you provide, as well as the time you spend working with each client varies. However, this strategy can help guide you in the right direction to determine your prices. For example, if you look at what you are currently doing, and see that your clients are averaging $1,000 a year in revenue instead of $2,000, it may indicate it is time for an increase in your prices, number of clients, or you may need to consider changing your market.
Pricing Your Services for Your Specific Business Needs
While these strategies can give you a good starting point, if you want to have a better understanding of how to price your services, and have someone make recommendations specific to your goals and business needs, I’d be happy to share how I can help you. You can book a discovery call with me and we’ll discuss steps for optimizing your pricing, so you can reach your revenue goals.