How much should I charge?

I talk quite a lot about pricing. It’s one of those things that most business owners struggle with at some point. Price too high and you won’t win any business. Price too low and you won’t cover your costs. Both have the same outcome – you can’t pay yourself. And if you can’t pay yourself, then what’s the point of putting all that hard work into running a business?

Stop just guessing!

The first mistake many people make is using guesswork to set the price. They pluck a figure out of the air and say, ‘that sounds about right’.

But what is that figure actually based on? Competitors? Costs? The price their mate suggested when they asked for advice?

Don’t just guess.

Do some research. Do some planning. Do some calculations.

Start with the end in mind

Nobody goes into business wanting to work for free, or even worse, at a loss. So, when setting your pricing, the first thing you should write down is how much you want to earn.

There’s no guarantee you’ll earn it, and you need to be realistic, but this gives you a starting point to work from.

For easy calculations, let’s say that in year one, you want to earn £24,000 before tax. That’s £2000 per month.

Calculate your costs

The next thing you need to know is your expenditure. Add up all your monthly outgoings. If you’re just starting out, you’ll probably need to estimate some of the costs, for example, you might set yourself a limit of £500 per month for marketing. For the purpose of our example, we’ll say our costs are also £2000 per month.

Do a bit of maths

If we want to pay ourselves £2000 per month, and our costs are £2000 per month, then we need to bill at least £4000 per month. That’s our target, and now we need to break it down.

By the hour

Let’s say we want to work 40 hours a week, 48 weeks of the year. That works out at 160 hours per month. So, we just take our target of £4000 per month and divide it by 160 hours, meaning we need to bill £25 per hour, right?

Wrong!

While you might work 40 hours a week, not all of them will be billable. There will be time spent doing marketing activities, going to meetings and attending networking events. Time spent on calls, sending and replying to emails, completing admin tasks and doing all the other things that come with running a business.

If there’s just you in your business, you’ll be lucky to spend more than 50% of your time doing actual billable work once you factor in all the other stuff. This means the billable rate for our example should be at least £50 per hour. Make sure your hourly rate covers your non-billable time too.

Note that I also fundamentally disagree with billing by the hour.

At it’s heart, billing by the hour punishes you for doing well.

Imagine you take on a novice plumber. It takes them 3 hours to fix a leaky tap. If they charge £25 per hour, then that’s £75 you pay them.

Now imagine you take on an expert plumber. It takes them 5 minutes to fix your leaky tap. Even if they charge £100 per hour, you might end up paying them £50 for that first half hour.

In other words, spending years becoming an expert and learning how to be good at your job means you get punished when it comes to billing.

Now do you see why I think hourly billing is crazy?

By the project

Project pricing can work in a similar way to hourly pricing. Just work out your hourly rate as above, then work out how long it takes to complete a project on average to get your project price.

Alternatively, decide how many projects you can complete each month and divide your target by that amount. Let’s say you want to build four websites per month. Your target is £4000, so that works out at £1000 per site.

But, if you’re charging by the project, there’s an even better way to think of your prices. That’s value pricing – and it takes some real confidence on your part – but if you can get it right, it can transform your business.

The basic idea of value pricing is no-one actually wants whatever it is that you do. They don’t want a website, they don’t want someone to write an employee handbook.

What they actually want is more different. Instead of a website, they want more sales. Instead of an employee handbook, they want to not taken to a tribunal.

What is it worth to someone to get more sales? Well, if their new website brings in £100,000 of extra sales, that’s a real boost.

What is it worth to someone to not get taken to a tribunal? Well if it avoids a compensation claim of £50,000 then that’s a real benefit.

And of course, all we’ve looked at here are the direct benefits. Underneath those are indirect benefits – more sales mean you can show off to your neighbours with a brand new car. No tribunals mean you can actually sleep at night. What are those things worth?

So to get started with value pricing, you need to figure out what your work is worth to your client. What value are they getting out of it? Both in monetary terms, the direct benefit, and in emotional terms, the indirect benefit.

These benefits are going to be different for everyone – so the process of value pricing is complex.

But if you get it right and you get your client to agree that this piece of work could be worth £50,000 or £100,000 – plus immeasurable emotional security, you can then use that figure as an anchor for your price.

I’m not going to build you a website – but for £10,000 I will give you a pathway to £100,000 in sales and a car that your neighbour will be jealous of.

I’m not going to write you an employee handbook – but for £5000 I will give you a cast-iron mechanism for avoiding employee tribunals, so you can sleep at night.

So you can see how value pricing can be really hard to do – and takes utter confidence and belief in your abilities. But when you get it right, it can transform your entire business.

Focus on what you can control

It’s all very well having these fantastic numbers for your prices. But you actually need customers, not prices.

The best way to do that is to focus on the things you can control. How many leads do you have coming in? How many of them become customers? And how long does it take for them to become a customer?

Magic numbers

You might have heard me mention the two magic numbers. Knowing these figures allows you to forecast for the months ahead and ensure your pricing structure works.

If you’re struggling with pricing and would like to know more about building a sales process that helps you achieve your targets, then I’d love to hear from you. Let’s arrange a call, and we can work through your pricing and create a business that works for you.

Photo by Mohammad Saifullah on Unsplash

Surviving the rollercoaster

Feast and famine.

The phrase is thrown around often, but it’s only once you work for yourself that you truly appreciate what a rollercoaster it can be.

One minute, work is coming in faster than you can keep up with it. You’re working day in, day out, evenings, weekends and even through the night. Taking a day off seems impossible and the thought of a holiday is unimaginable.

Suddenly, things ease off.

You can breathe again. And you start thinking you might have finally got this business malarkey sussed after all…

Then you realise there’s barely anything in your pipeline, your biggest client has gone off the radar, and the project you had scheduled in next week has fallen through.

Sound familiar?

The good news is you’re not alone. And the even better news is that there are some things you can do to make the fluctuations less severe.

Understand the magic numbers

Most problems occur because business owners don’t understand their magic numbers.

How many clients do you need to win each month in order to cover your overheads and pay yourself the amount you want? What is your conversion rate and the average length of time from enquiry to invoice? How many enquiries need to be generated each month to hit your target?

If you know these figures, you can forecast for the months ahead, predict when a quiet period is coming up, and feel confident enough to turn away the projects you don’t want.

Pay yourself a set amount each month

When the work is flooding in, it’s tempting to spend a little more than we should. It’s great while it lasts, but when the work quietens down, it can leave us wondering if we’ll be able to cover the mortgage next month.

I’m a big fan of the ‘profit first’ way of working. Rather than paying yourself whatever is left at the end of the month, you take out the profit you want first and then invest what is left into your business.

Of course, if you want this to work, you need to have figured out your magic numbers.

Manage your marketing

When you’re busy, it’s easy to neglect your marketing. When you’re busy, you focus on the work you already have, not on winning more.

The problem is, once you’ve completed all your current projects, you’re left with nothing in your pipeline except tumbleweed.

So what happens now? Well, you go back to everything that worked last time of course.

You have a real push on marketing and advertising and networking. Your follow-ups are awesome, you spend hours putting together detailed proposals, and you take time to go and schmooze potential new clients.

All your hard work pays off at once, and you get an influx of work. Brilliant!

And now you’re back to being too busy to manage your enquiries properly, and you’re working on a load of projects you don’t really enjoy.

And so the cycle continues.

Up, down, up, down, round and round you go.

Take control of your pipeline; don’t let it control you.

To ensure consistent sales, you need consistent marketing.

Even when you are crazy busy, take time to nurture future clients. And when business is a little scarce, don’t fall into the trap of taking the projects nobody else wants.

It’s time to get off the rollercoaster

If you’re struggling to break the feast and famine cycle, I can help.

Every business needs a system.

A system for making sure you’ve got enough cash. A system for generating enough sales. A system for making sure you’ve got enough time to live your life. I work with you to create that system.

If you’d like to know more, let’s arrange a call, and I’ll explain exactly how I can help you build a business that works for you.

Photo by 2Photo Pots on Unsplash

Why your money is just like a tube of toothpaste

Every now and then, I hit the bathroom jackpot.

No, don’t worry – it’s safe to keep on reading.

Every now and then, I have a brand new tube of toothpaste. On the same day that my electric toothbrush is fully charged. And has a brand new head on it.

When those three things happen together, it’s like a toothpaste party.

But, have you noticed that when you’re starting a fresh tube, it’s not just a toothpaste party – it’s a free toothpaste party. You’re slapping that paste all over your brush … some slipped off and fell down the sink … no worries, I’ve got tons of the stuff, let’s just fire another colossal ball of it onto my brush. No pea-sized amounts for me my friend.

And then, a few weeks later, as the tube is almost exhausted, you pick up your toothbrush and eke out the final few scrapes of paste. You fold the tube back, rolling it in on itself. A pea-sized amount would be a luxury. I’m going to make do with a third of a pea. I can handle it.

And you know what?

Your teeth stay clean. A third of a pea is all it needs.

But when you’ve got a full tube of toothpaste in front of you, you don’t think like that. Because it feels like it will last forever. Even though you know it won’t.

This wasn’t my analogy – it was Mike Michalowicz’s. He uses it to describe how actually, when you’re spending money in your business, you can be mislead by your bank balances.

If you’ve got £10000 in your bank account, it’s going to look like that full tube of toothpaste.

You know you’ve got to keep some aside for your tax. You know you need to pay yourself at the end of the month.

But that little voice at the back of your mind is saying “no pea-sized amounts for me – I’ve got ten grand!”.

And you spend it.

And it’s gone.

And when it comes to paying yourself, once more, you have to make do with scraps.

If you put some money aside before you begin, you might only have £5000 in your bank. It still seems like a lot. You still feel like spending it.

But this time, you’re safe to do so.

Because the other £5000 is safely locked away in a different account. Ready for when you need it.

It’s just human nature.

Play to your strengths, don’t fight your instincts.

Take your Profit First and then you’re free to spend whatever you want.

If you’d like to download some free chapters from the book, just click here.

How Two Magic Numbers can give you a predictable and reliable business

Running a business is hard work isn’t it?

That’s the truth of it. 

Sleepless nights. 

Long hours. 

Financial stress. 

That’s how it goes for a good few years, while you get yourself established. 

And then, some magical lever gets pulled, and then you’ve made it. 

Out the other side. 

But how do you get to that magical point? What makes the magic happen?

There are actually two things that make it happen. 

Two Magic Numbers. 

These two numbers, once you know them, give you a level of certainty and confidence in your business. 

They mean you can plan ahead. 

They mean you can predict the future. 

They give you the space to concentrate on the things that matter. 

And they allow you to safely turn down the bad clients, the ones who always hammer you down on price, the ones who take up all of your time, the ones who are always complaining. 

The first Magic Number is your Conversion Rate. 

Suppose you go out and get 100 business cards from a load of networking events. You go through those business cards, calling each person up on the phone, and you end up with 30 people who are willing to have a meeting. You go to those 30 meetings and you end up with 15 people who would like you to give a presentation to the board. You give the presentations and you end up with 10 people who would like to buy your services. 

10 out of 100 leads turn into business. Your conversion rate is 10%

Your second Magic Number is your Sales Cycle Length.

Let’s say you spend all of January getting those 100 business cards. Throughout January, you’re on the phone to people, but some are busy, others are away – so your 30 meetings end up being booked across January and February. Your first new client from this round of networking signs at the beginning of February – barely four weeks after you started. But after meetings and presentations, delays and postponements, the tenth new client, signs up in April – almost 16 weeks after you got their card. 

On average, the 10 new clients you got signed up 8 weeks after you received their business card. Your Sales Cycle Length is 8 weeks

Now you know those Two Magic Numbers, you can start making predictions about the future. 

Suppose in April, you did another round of networking, but this time you only got 50 business cards. Based on your Two Magic Numbers, that suggests you’ll get 5 new clients at some time in June. 

The real power of this comes when you decide to use it to your advantage, however. Let’s say you want to raise an extra load of money to go on holiday. If you know your Two Magic Numbers, you can use them to calculate how many leads you need to generate – and when – so that you’ve got the new clients, and the money in your pocket, at just the right time. 

If you’d like to know more about how to calculate your Two Magic Numbers, check out my video and email sequence

Ever feel like you’re stuck in a loop?

When you started your business, did you have big dreams and ambitions? Or even moderate dreams and ambitions?

Maybe you just wanted the free time and ability to take time off and pick your kids up from school?

Or you fancied a big house in the country, and a slightly smaller town house that you could gift to your mum?

Whether you wanted your business to give you a lavish lifestyle or just give you a bit more of what you were lacking – it’s often easy to lose track of those dreams.

When I was looking back through my notes from three years ago, I was shocked to see that I’ve not really moved forwards in all that time. The goals I had set for myself were substantially the same as this years. The progress I had made was, in many cases, non-existent.

Are you stuck in a loop? I am (was?)

There’s a saying “if you do what you’ve always done, you’ll get what you’ve always got”.

If you want to move towards those dreams, you need to change how you do things. It’s not enough to write out a plan. You’ve got to decide to implement it. And make sure you actually do.

Too often, I’ve come up with the plan then got distracted when implementing it. And the reason for that is because of a number of issues I’ve got in my own brain.

I consistently underestimate how long a particular project will take. I always undercharge for the work I do. I’m always too nice when it comes to accepting change requests.

So I decided, earlier this year, that it was time to change.

I no longer take on those bespoke, open-ended projects. So there’s no estimating to be done; instead I have a series of defined, thought-out products that give you what you need but give me certainty in how long they will take to deliver.

I have a fixed price list. No more writing proposals and estimating how much it’s going to cost. Instead, I can say “here are the prices; I hope you’ll see they’re extremely good value for what you get”.

And I have a process for handling requests. When we’re at points X and Y in the process, that’s when we make those amendments. That way we stay on schedule, we all know where we stand but the end result still fits your needs precisely.

For me, the change I needed was all about money. Where do you need to make the change?

Find out how.

Sometimes, the smallest changes can make the biggest difference

How does your business look to you at the moment?

Are you struggling for time?

Have you had an evening off recently?

Have you had a weekend off recently?

When we started out, all the gurus and fancy pants consultants were swanning around, promising us that running our own business would be fun.

  • It would give us more money.
  • No more idiot bosses.
  • Take time out to spend with the kids.
  • Work in your underwear.
  • On the beach.

What happened to that lifestyle?

The problem is, many of us were never taught how to run a business.

I certainly wasn’t.

This means that the stuff that we already knew how to do, were within us. But the extra stuff that we needed to know … we didn’t even know we needed it.

Because that first year or two … it’s all about the stuff you know how to do. The things you did for your day job, you just find a few clients and do it for them.

But as time goes on, as your clients’ expectations change, as your expectations change, you need to change.

Learn new skills.

Approach things in a different way.

And when we’re in the thick of it, it feels like we can’t afford to do that.

Because there’s no money to spend on training. There’s no way we can hire someone to do the tedious admin stuff. We just don’t have the time to invest in what we know needs to be done.

It’s overwhelming.

There is a solution though.

Recently, I went to the physio. I have had problems in my calf muscles and shins for years. I thought it was finally time to do something about it.

She prescribed me a series of exercises.

Each exercise was tiny.

Calf raises. Heel drops. Lunges.

Do one – didn’t even notice.

Do ten – barely notice.

Do thirty – woah that really hurts.

Each set of exercises took about ten minutes.

And on day one, I could barely do fifteen of each.

By day seven, I could do twenty.

By day fourteen, I could do thirty.

Even though each individual exercise was tiny, even though the time I spent was short, just the simple repetition of really small steps was going a long long way to making a huge difference.

And it’s the same with your business.

The simple things can make a massive difference.

Baby steps.

Fix one problem at a time.

Find out how.