Signs You’re Undercharging for Your Work
When it comes to the overall success of your business, one of the most important decisions you’ll face is how to price for the work you do. Charge too much and you could scare away potential customers. Charge too little and you could run yourself out of business.
Figuring out how much to charge is stressful, but it’s worth it. If your business doesn’t bring in enough money to pay all the bills and compensate you, it isn’t going to last long.
So, how can you tell if you’re asking too little for your services? Here are some signs you need to consider charging more, as well as a tip on where to start when considering a price increase.
1. The work isn’t worth the money
Many small business owners have periods where they don’t feel motivated to work. That’s normal. But what’s not normal is repeatedly taking on projects (or clients) that you don’t feel are worth the money they bring in. You may feel obligated to do the work, but there might also be a sense of resentment about it. Working may feel like a chore.
If the work doesn’t feel as though it’s worth the money you’re making, that’s a sign you need to charge more. You don’t always have to feel keen to work, but you should feel as though you’re being fairly compensated for what you do.
Which brings us to the second sign…
2. You’re not taking home a salary
Small business owners have a tendency to make sure everyone else is taken care of first. There are bills to pay, marketing to take care of and, sometimes, employees who need to earn a living. You can’t forget about yourself, however.
If your business doesn’t bring in enough to make sure you bring home a reasonable salary then maybe you aren’t charging enough for your services. You own a small business so you can be in control of the work you do—you should also be in control of your salary. If you don’t make a salary, you need to charge more and you need to do so quickly.
3. Your prices haven’t changed in years
If you can’t remember the last time you raised your prices—or you can but it was a long time ago, then you need to increase your rates. The cost of of doing business is on the rise. If your cost of doing business increases but your prices don’t, you’re earning far less from your small business than you used to, or than you should. Don’t go longer than one year without reviewing and increasing your prices.
Do you know your break-even point?
One great way to finding a starting point on determining what to charge, is to work out your Break-Even Point. To do this there are a couple of things you need to work out first:
- Calculate your fixed costs
- Work out your Gross Profit Margin %
Once you have those figures, the formula to work out your Break-Even Point is: Break-even point = fixed costs / gross profit margin
Your break-even point is where you don’t make a loss nor a profit. That is your starting point when reviewing your pricing!
Final thoughts
It can be daunting to think about raising your prices, but it’s important to do. You work hard as a small business owner and you deserve compensation for the time you put into your business. You also need to charge enough to ensure all your business expenses are paid for and that you can withstand a cost of doing business increase.
If changing your prices for current customers seems overwhelming, start small. Set higher prices for your services and charge new customers those rates. If you’re concerned about losing existing clients by raising prices too high too quickly, increase their rates incrementally. You can also give your clients plenty of notice about the increased rates, so they have time to become used to the idea.
The really good customers and clients will understand that you need to raise the rates and will support you for doing so. Those who don’t, probably don’t value you and weren’t great clients to begin with.
Do you need help with any of the above? Don’t hesitate to contact us today!