‘Because you’re worth it’
L’Oreal introduced this slogan in 1971 but what has it got to do with the long term success of your business?
Kim Gaast said, ‘If you don’t value your time, neither will others. Stop giving away your time and talents. Value what you know and start charging for it’.
As a start up or small business, there is a real danger that you may undercharge for your time and talents. The reasons may include your perception that:
- You don’t have as much experience as a more established business
- Your customers can’t afford to pay you at the rate you are worth
- You need to be cheaper than your competitors to secure the sale
You are probably not charging enough if:
- You win 99% of the proposals you prepare for your potential clients
- You are really busy but there just isn’t enough money in the bank
- Your whole marketing strategy is based around discounting and being the cheapest.
- The likely consequences of not charging enough may be that:
- You work harder and longer for the same income
- You have less time to spend on marketing and promoting your business
- You attract less than perfect customers who:
- Want to cut corners
- Put pressure on you to deliver more within the same budget
- Don’t pay you on time, which then adds more pressure on you
- Want to cut corners
- You crumble under the pressure of just not making enough money and go out of business!
Many business owners set their prices based on what they think their target market will pay but how do you know if that is going to be enough?
Firstly, you need to calculate the amount you need to sell, in order to pay all your costs and cover the tax due on your profits, so that you can be confident that you will make enough money.
Working out your sales target
You need to add the following figures:
How much profit you need to make, in order take out what you need
The tax due on that profit
Your overhead costs
Your Cost of Sales
There is a tool called the Revenue Target Calculator on the SAS Business Box that works this out for you. You plug in your numbers and it works out your target for you - www.sasbusinessbox.co.uk
Working out your number of working days per year
Although there are 365 days in a year, you won’t be able to work every day so dividing the sales target by 365 won’t be useful.
Using an example of a consultant who works 5 days per week, their number of working days calculation might be:
Working out the number of chargeable working days per year
You will also need to consider the number of days per year that are allocated to non-chargeable activities like marketing, admin and bookkeeping.
A general rule of thumb is that a business owner spends about 40% of their time on non-chargeable activities.
So, in this example, the number of chargeable days is actually 140 days.
The consultant in this example would need to divide the sales target figure by 140 days, to work out how much they need to sell each delivery day.
Now you know how to work it out, ensure you are charging the right amount for your time.
Your perfect customer values what you do and are happy to pay your fee because You’re Worth It!