Most of us struggle with charging what we are worth, we tend to look at pricing as a number plucked out of thin air, perhaps based on what we think our customers can afford to pay, or even worse, we base our prices on what our competitors are charging, with no idea at all as to what they are basing their costs on.
Get your pricing right and your business will succeed. Get it wrong and you might have a pile of business, but you will never make any money.
Here are four tell tale signs that you're probably not charging enough for what you do:
1. You win most of the projects you bid for.
Winning every project sounds great, but it probably means something is wrong. I used to pat myself on the back because for many years because my business got ninety percent of the jobs we pitched for. We had periods in there where we got every single job. My ego told me it was because we were awesome, but in reality and hindsight, we got them because we were too cheap. And whilst the business was busy, it never made any money.
Then I changed my pricing structure dramatically, virtually doubling what we charged. Our conversion rate with projects dropped to fifty percent, but we started making money. From that time on, I have always used this as a measurement of how my pricing is working in a particular market, if I am winning too many jobs, I'm too cheap, not enough and I'm getting too expensive.
2. You are really busy but there is never any money in the bank.
Sure, there can be other reasons why there is never any money left even if you are really busy. You might be spending too much, taking too long on projects, not managing your team properly, but most of the time it comes back to simply not charging enough.
I have encountered businesses that could never make money, even at full capacity, simply because they are not charging enough for what they do. They haven't taken the time or sought help to understand exactly how much it costs them to run their business and by association, how much they need to charge to break even and more importantly make a profit. They have plucked a number out of thin air that is on par with their competitors, without knowing what model their competitors use to work out their prices.
3. Your entire marketing strategy is based on being the cheapest.
This is a strategy that is pretty much doomed to failure. Sure, the odd company can be built on it, but over time, it seems very hard to sustain. As simple as it sounds, a business with a tiny profit margin is not resilient. They are incredibly lean, they feel the impacts of changes in the economy immediately and they are always susceptible to the next new business that comes along and bases its pricing on being the cheapest.
If your business development and marketing strategy is based entirely around being the cheapest, there will come a time when it will stop working.
4. You find it really difficult to talk about money with your clients.
We should be able to have very open and honest conversations with our clients about money. This means being able to talk openly and honestly about costs, or more specifically issues that could affect the cost, payment terms and expectations, what happens if there are payment problems and so forth.
Any business where the business owner struggles to talk about money, tends to be on the receiving end of not getting paid what they are worth. They can even develop a reputation as being a push over. Who wants that?
If the thought of having these kinds of conversations makes you cringe, it's really something you need to come to terms with. Start having these discussions early on in the client relationship, make it as normal as talking about the weather. When there are problems, bring them up straight away, don't stew on them or let them fester.