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Featured
Article: PRICING – PART
1: FOCUSING ON THE PRACTICAL
RATHER THAN THE PERSONAL
by Nina Feldman
One of the biggest challenges we face
in a service business is pricing. We
want to know what we're charging
is fair, both to us and to our customers.
I've struggled with pricing
ever since I started my business, and
even now, a little voice of self-doubt
sometimes nags at me when I talk to
a recalcitrant client about rates,
because I haven't completely
learned to separate the objective from
the subjective. I still have
trouble differentiating between the
practical ("I'm running
a business to make a living")
and the personal ("What if the
customer doesn't like what I
charge, and therefore doesn't
like me?")
ARE WE NICER TO OUR CLIENTS THAN WE
ARE TO OURSELVES?
In order to run successful businesses,
we need to base our pricing strategies
on:
- what it costs to complete projects
at a rate that will earn us a decent
living
- what benefits and value we're
providing
NOT on:
- whether clients will like us or
not
My intent is to aim this article toward
women business owners, many of whom,
raised to be "nice" at
all costs, make business decisions
on an emotional, rather than a practical,
basis. Women in charge of setting
their own rates are often too insecure
to charge clients enough to make a
good living. Many of us don't
feel we deserve to make money by charging
others directly. I know very few men
who go into a business and expect to
make less than they would doing the
same job as an employee; yet I see
women, particularly in our profession,
doing it all the time. One problem
is that our industry is undervalued
by others; the bigger problem is that
we undervalue it ourselves.
BASING RATES
ON OVERHEAD VS. COMPETITION
Many women, when trying to determine
what to charge, either (a) copy what
the competition charges or (b) pluck
a price out of the air they think customers
may go for. Years go by and they
stick with this rate, afraid to crunch
the numbers to see how much they're
actually earning, scared to raise their
rates to cover the cost of living. Since
the Consumer Price Index goes up approximately
3-4% annually, those who don't
raise their rates are automatically
earning 3-4% LESS each year!
When successful male entrepreneurs
start businesses, they do spend some time
finding out what seasoned business
owners in their field are charging,
in order to stay aware of the competition. However,
they spend a more significant amount
of time figuring out their own overhead. Self-employed
women, on the other hand, are often
so worried about being "fair," so
intent on not being considered greedy
or selfish, that they think they have
to measure themselves against everyone
else to make sure they're not
stepping out of line—so much
so that they may not even cover their
costs.
If, at the end of the year, you count
up all the hours and money you're
spending on your business (including
time spent reading the Virtual
Nation!), subtract it from your
gross, and aren't netting a salary
that is at least what an executive
secretary or office manager in your
area is making, you're probably
charging too little. You need
to examine your rates overall, and
this can be a good time of year to
do this, when you've recently
paid your taxes and seen how much it
cost you to do business this past year.
HOW MUCH
WOULD YOU BE PAID TO DO THIS AT A COMPANY?
You can find out right this minute
what administrative professionals in
your area are paid. Just go
to www.salary.com (or
AOL Keyword "salary") and
type in your zip code. You might
be in for a surprise!
DISASSOCIATING
YOUR PRICES FROM YOUR SELF
I used to raise my rates with a letter
to my regulars saying something like, "Due
to the [4%] increase in the cost of
living index since last year, we have
raised our rates to [$55/hr.] as of
[April 15]." Explaining that
your accountant told you it's
imperative you raise your rates is
a good tactic, too--even if your "accountant" is
you! (I use the imperial "we" to
de-emphasize the personal. At
first I would remind myself that "we" included
myself, subcontractors, my husband,
etc…until saying "we" became
second nature.) I added a handwritten
note to regular clients saying that
because they were such good customers,
I wasn't going to raise their
rate until [June 1]. Customers
really appreciate being treated specially.
Later, I decided not to formally announce
price increases at all. In most
businesses "prices are subject
to change without notice"—and
many clients won't even notice! If
anyone asked (rarely), I'd say, casually, "Oh,
yes, our prices increased the first
of the month." People aren't
really surprised by price increases;
they realize it's part of the
cost of being in business. Does
the average supermarket customer go
storming to the manager when the price
of Cream of Mushroom soup goes from
89 cents to $1.09? True, sometimes
one grouses to a cashier, but the clerk's
response is usually to sympathize with
them—not charge them less! A
complaint can be an opportunity to
remind your client that you're
both on the same side: "Yes,
isn't it amazing how the cost
of everything keeps going up?" This
reminds them that your business is
subject to price increases, too--that's
one of the reasons you had to raise
your rates.
KNOW YOU'RE
WORTH IT
I'm not advocating that every
woman raise her rates. I'm
appealing to those who are already
providing excellent service to their
clients and who behave in a professional
manner; who keep appointments; stay
up all night to meet deadlines; maintain
clear records; return phone calls;
help their clients look and sound good
on paper; and stay abreast of business,
technology, and production skills. In
other words, those who serve their
clients the best they can—yet
still hesitate to charge what this
is worth.
From my experience, clients who truly
value your service know ahead of time
that you're worth it and won't
object to a price increase. Occasionally
one might grumble, but, when met with
wise silence or detached sympathy,
will go no further. Clients who
object vehemently probably don't know—or
believe in—the value of what
they've been getting and are unlikely
to be convinced otherwise. It
might be time to replace them with
others who do understand how much you're
doing for them. A price increase
might be just the thing to weed out
the chronically dissatisfied without
having to "fire" them.
PROFIT VS.
SALARY
Many people believe that what's
left at the end of the year after you
subtract your expenses is your "profit." Profit
is money you make over
and above your cost of
operations and your
salary. Standard & Poor's
average profit for corporate businesses
is 27 percent; for small businesses,
10 percent. How many of us charge
enough to allow a 10 percent margin
of profit after we pay ourselves a
good salary? If not, can we really
consider ourselves "in business"?
IS IT YOUR
LOCATION OR YOUR PERCEIVED VALUE?
I frequently hear the objection, "There's
no way I can get customers to pay more
than $X/hr. in my area! Other
services can charge more than I do
only because the cost of living in
their area is higher and people expect
to pay more."
Certainly, standards of living in
different geographical areas are a
factor. But maybe what our customers "expect" to
pay is what we've taught them
to expect. We may need to re-train
them!
According to annual surveys published
in Brenner Information Group's Pricing
Tables for Desktop Services (www.ninafeldman.com/resources.htm)
, rates charged for office support
services around the country range from
$30-$60/hr. Variances in
what business owners charge are more
likely to be based on their level of
professionalism, their experience,
how pro-actively they promote their
business, and what clientele they choose
to serve than on what people in general
are "willing" to pay in
their area.
Recently I spoke with two different
virtual assistants who have been providing
similar services to the public for
over 10 years. One is charging
her customers $25-$28/hr. The other
raised her rates last month to $60/hr. The
$60/hr. business (the owner/operator
and a part-time employee) has billed
over 80 hrs./wk. for the past three
weeks. They can barely keep up
with the amount of work that is coming
in.
What you can charge may have a lot
more to do with your credibility than
where you live. To a great extent,
the economy of the place you're
located dictates the rate you can charge only if
you're trying to get work from
every single person who calls. To
be able to charge a top rate, you need
to go after the clients you want, not
just wait for the phone to ring.
One of the reasons some VAs have more
clients than they can handle while
charging as much as they choose is
that they give their customers the
sense that they know what they're
talking about, they know their work
is valuable, and they're prepared
to help clients get the results they
desire. If you can present yourself
as someone who is an authority in your
field and is happy to help, you just
might be able to ask for what you're
worth and find people will pay it with
a smile.
For a free worksheet to help VA's
calculate your billing rate, see http://www.ninafeldman.com/resources.htm
Copyright Nina Feldman, 2006
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