Know your value and don’t undercharge
One of the biggest issues I see as I talk to new business owners is the tendency to underestimate the value of their work, and therefore charge too little to clients. There are a variety of reasons this happens, and here are a few of the common ones:
• You feel like you’re charging a lot vs what you used to earn at your job doing the same thing
• Charging a lot feels unfair to the client, as they might not be able to afford your product or service
• Wanting to earn more money goes against your values- isn’t it evil to want to be rich? Or to want/love/expect more money? (yes, I have seen and heard this philosophy)
Let’s be blunt- we need to look at these issues one by one and examine why they’re wrong and what to do about it.
The first statement, that it feels weird to charge 3-4 times or more as an hourly rate (or rate that is combined into a lump sum charge per month or per project, which are much better ways to invoice anyway), is incorrect on a number of levels.
First, as a business owner you have many expenses to cover as well as time spent that isn’t compensated. Expenses include rent for an office or space used in your home, supplies, computer, insurance, travel and so on, many of which you were not responsible for when employed at someone else’s company.
Second, there is all the unpaid time that goes into networking, interacting with potential clients, and then preparing estimates and proposals. A business owner isn’t on the clock.. yes, you might have a salary coming out of the company, but the ability to pay that salary comes directly from your company revenues. Another way to look at how much to charge clients is to compare the money the client is spending on the project to increased revenues that they’ll realize, or, costs they’ll be able to cut by hiring your company. When looking at it this way, you quickly realize that what might seem like a high rate is in fact a great deal for the client: a project completed efficiently, professionally and at a cost that is budgeted and agreed upon.
Not only that, but the client’s use of your company lets them avoid hiring an actual employee, training said employee and providing a salary and possibly benefits. I can speak to this in my own financial consulting business: when I find ways to streamline business processes, save money on bank fees and finance charges, save my clients from fraud by improving accounting systems (and the list goes on from here!), both the client and I easily recognize that the savings realized/revenues achieved far outweigh what they’ve spent with me.
There are also many ways to leave a client with benefits that last, whether it is in teaching them to utilize new processes and methods, or providing a product or service ongoing that becomes a time and money saver, or boosts their company revenues into the future.
Another downside to charging too little is the impression it makes on clients- if you are that cheap, then maybe you get what you pay for? Going too low is not going to help you pay the bills, and it’s not going to make you look good either.
If this isn’t convincing enough, just remember that a potential client that balks at the cost of a project or monthly service just might not be a great client in other ways. Maybe the client’s company isn’t far enough along to really use your service, or really does not have the funds to pay for much of anything in the given moment.
Whatever the reason, it is better to turn away a client that can’t or won’t pay than to cave and do work for cheap, leaving you struggling to cover the costs of running your business and feeling frustrated in the process. Not only that, but you’re setting a precedent- and potentially creating a situation where that same client recommends you to their colleagues who might also want quality work done for cheap!
Finally let’s address whether or not wanting money is evil.. this is easy, it isn’t. If people didn’t want to earn money doing what they love, they wouldn’t (or shouldn’t) become business owners in the first place. Charging appropriately and being able to afford your life are good reasons to run a business, and there is more.. once you actually have something, you then have the luxury of deciding to give back.
In my own business I’ve set up recurring donations to several causes that are important to me: funding college scholarships at Portland State University, saving the environment through Oregon non profits and others. I also donate my time and have served on multiple non profit boards as well as donated accounting software to non profit organizations. I can only do this because I make enough money in my business and am not scrambling to add in billing hours at a rate that would be unfair to me.
If you are setting up a new business or maybe restructuring your current one, just think carefully about why you chose to go into business in the first place. We all deserve a fair wage: we deserve to be paid for our skills, our years of experience and our willingness to go out and take risks as business owners each and every day. Know your value!