Personal, business and ethical considerations must all be reflected in your price.
Previously, I discussed the importance of always knowing your baseline hourly rate even when you do not price your work and services by the hour. However, it’s just one element of the pricing equation. There are many other elements: personal, business and ethical considerations, that must also be considered and reflected in your price.
The personal factors you’ll consider in calculating your hourly rate to be factored into your pricing include many obvious things like:
- how much money you want to make
- how many hours you want to work and when
- how many years you plan to keep working
- where you want to work and with whom and so on.
Here are some equally important but frequently forgotten things to consider when choosing your rate:
Physical health factors —
- will you be taking on any health or safety risks?
- will you have to compromise or give up any health promoting activities you do now (like working out, eating right, getting enough sleep etc.)?
- will the physical demands be out of your comfort zone?
Emotional health factors —
- how much frustration and aggravation is likely to be involved?
- how much inconvenience will need to be endured?
- how much are you able to charge above and beyond your resentment factor?
- how much are you likely to regret doing/not doing this work?
- how well does this opportunity and proposed rate resonate with you?
- how far does this take you out of your emotional comfort zone? (we all have issues about money, self-worth, and feeling good enough or safe enough to work through)
- will there be an impact (+/-) on your family, friends, other relationships?
- how much energy is going to be sucked from your life?
Satisfaction factors —
- how much is this likely to enhance learning and add to your marketability?
- how much are you likely to gain in professional credibility?
- how much creative freedom and control are you likely to have?
Resentment factor —
This is the amount you would need to charge a client in order to not resent the time and effort involved in doing the work or providing the service to them. You never want to go below this number because doing so ends in anger and despair. It’s always wise to have a cushion on this safety net because there will usually be some unforeseeable and/or uncontrollable circumstances you can’t predict or prepare for.
Regret factor —
This is the amount of pain you experience by taking a job that is wrong for you or turning down a job that is right for you. And it is also the pain you feel by not recognizing (or being honest with yourself) about the right price for doing the work, feeling comfortable with (and better yet good about) that price, and then charging it to the client.
Being a business owner is great therapy. Your own survival depends on your ability to overcome all those bad feelings you’ve carried over from childhood. You know, the dark and deep I’m-not-good-enough-and-I-never-will-be thoughts you’re replaying constantly.
That’s typically what’s keeping you in “low rate/low price” hell. Seriously. You don’t have time to indulge in feeling hurt, overwhelmed, frightened or bitter. You’ve got work to do. Work no one else can do. Ignoring that fact is self-destructive, disrespectful, and bad for business. So stop procrastinating, send your fear out for lunch, and keep reading. (There’s nothing like working on a pricing proposal to bring out the fear in people is there?)
Avoidance patterns are normal but they are a one-way path to nowhere. Don’t look to what others are doing for safety and reassurance. They are not you. You won’t find the answers you need in somebody else’s business plan. Remember: “Comparison is the root of all unhappiness“.
Now if you have been using other people’s pricing as your benchmark, it could be that sometimes their price feels like your right price too. And that’s ok. What’s not ok is…
MISTAKE #4: Deciding it’s your right price just because it’s their right price.
That just isn’t a good enough reason.
Most people think pricing is an external process. You can’t really blame them for that. But it isn’t. It’s an internal process which starts with slaying your inner dragons.
First you must train yourself to feel the rightness of the price within your heart. (Oddly enough, when the price is right, it’s never actually about the price.) What you want to sync up with is a price that resonates well with you and your clients. When you get it right, sales happen with very little effort, your stomach won’t churn and your palms won’t sweat. You can expect to have to do a little situational fine-tuning and testing.
You’ll also want to pay close attention to the response of your community audience. They’ll vote “yes” to your offers when you hit it right on. Not everyone will love what you’ve come up with for your hourly rate. It doesn’t matter. Your fear of criticism is another thing creating a pricing barrier for you. Secure business owners do not seek approval; they measure success in happy customers.
Forget about the few people who write to complain you charge too much or too little. They are probably not your best folks to work with to begin with. Work out your hourly rate so the majority of people you are selling to decide to happily move forward with your offer.
It’s all about you. And yet it’s never about you. That’s because we don’t see people as they are; we see them as we are. If you’ve done all the work on paper and your heart, mind and gut are all feeling good about the price you’ve chosen for your hourly rate, go with it. It’s not going to be right for everyone; not everyone is right for you anyway.
There’s plenty of work and business out there for everyone. Show compassion for those who don’t resonate with your work if it makes you feel better. But show compassion for yourself first. Are you living as well as your customers? If your rates and prices are not sufficient to pay yourself well, how will you take care of business? Think about it.
Now that we’ve dealt with the higher priority personal stuff, we can move on to the business factors which include things like your industry, target market and size, your competitors and their rates, your positioning and skills relevant to your market, and ongoing demand for the service(s) you offer.
We’re all familiar with the sensitivities of supply and demand but the correct response to a downward market is to focus on adding value, not slashing your prices. As a business owner, you have total control over how you position your pricing. You owe it to yourself to know what your baseline hourly rate has to be and how you might go about packaging and presenting it effectively in any economy.
Naturally you need to keep on top of your market as well. When it starts to shift, you should have already read the signs and be ready to offer something new that’s in line with where the direction is now going. But your changing market considerations are only one aspect of your rate and price setting challenges. There are many financial, practical and operational factors to consider also.
The obvious financial considerations are the costs you incur to deliver your product or service, how much you need to cover office expenses, pay your taxes and so on. To that you must add the more invisible operational costs like the hours you spend on planning, administration, preparing for client meetings, doing research, setting up your business tools and office, travelling and recovering from travelling, finding people to help you get the work done and so on.
Not to mention the costs of preparation and reciprocation. You weren’t born knowing what you know today; you had to develop your knowledge, skills and talents as you went along. And you cannot succeed in a vacuum so, over time, you can expect to incur costs for supporting and assisting those who help you along the way.
The list of hidden costs can go on and on. The problem is most business owners forget all about these costs when calculating their pricing which brings us to…
MISTAKE #5: Not providing for all costs, visible and invisible, that impact pricing.
Finally we come to the ethical factors in rate setting which include treating all of your customers fairly, maintaining accessibility to the service you offer, abiding by a professional code of ethics, etc.
Every business transaction you have involves promises. Some are obvious such as advertising that evening and weekend appointments are available. Some are implied, such as the promise of excellence communicated by the quality of your web site and other marketing materials.
It is vitally important for you to know what promises you are making to your clients and customers and that you are clear on what their expectations are. You also need to factor in what you know about your percentage of:
- low vs. high maintenance clients
- slow and non-paying clients
- cheap and dishonest clients
They have an impact on your rates too because the losses you incur by servicing them must be covered and taken into account. You can’t give more than you’ve got. Make sure you know what it takes to deliver on your promises and meet your clients’ expectations. Then set your hourly rates and prices at a level that ensures you’ll have what it takes to do what it takes. Your professional reputation depends on it (which then of course affects your future rates).
Success is an inside job. Charging high rates and prices starts from “how you are” not “who you are”. Paying yourself well means charging enough to ensure you can deliver on all your promises without sacrificing your personal needs.
So how do you pay yourself well enough to deliver on your promises? Know what’s expected. Know what it will cost you to meet those expectations. Know what you need to take care of yourself first, then take a stance with all your clients that protects it. This is perhaps the greatest of all pricing mistakes…
MISTAKE #6: Not paying yourself first and well.
Always, always, always pay yourself first. And well. You deserve it. We teach people how to treat us. Consider what you are teaching your clients and customers when you inappropriately price your products and services.