Do you have a pricing structure? You stick a price tag on it, people buy it, you make money. Sounds simple, right? I’ve seen it with business owners across every industry. They enter entrepreneurship a little naively and think that it really is that simple. Most of us have come from an employee background and have never had to obtain some crucial skills and knowledge in areas such as finance management.
We really do start in the deep end and have to figure it out as we go. There are so many reasons why we end up hindering our ability to gain and maintain financial freedom. One main reason is wrong pricing and the idea that we need to just work harder if we aren’t seeing results. In a recent article, I stated that:
“There is not a direct line between working harder and making more money.”
This is so true and something we must unlearn. Catch up on that article here.
Similarly to understand what you may be doing “wrong”, it is also really important to have key indicators that you are charging the right price for your services in order to see steady growth. One key indicator is that you are finally able to actually pay yourself! Something that seemed like a given when starting a business, isn’t something that happens straight away. You’ll find, especially at the beginning, that you are pouring any income made back into the business. You should have both. Money to invest back into your biz and pay yourself a wage.
What happens next? Is your job done and dusted? I’m afraid not! There is one crucial and final piece to this financial puzzle. We need to ensure that we have a solid pricing structure or framework. Without it, you’ll struggle to sustain and grow your business, which means that you will keep feeling compelled to work harder and harder for fewer results and feel like you’ll never get ahead!
And honestly, if you aren’t able to serve the people that need and want your services you’re leaving way too much money on the table.
I want to share 4 steps to creating a solid pricing structure that actually works:
- How much revenue do you need to grow your business?
- How much personal income do you need from your business?
- How many offers do you want to have?
- How many people do you want to serve?
Pricing Structure Step #1
How much revenue do you need to grow your business?
What an absolutely vital question and one that you may not have delved into as deep as necessary in your business. We are not just looking at how much we need to break even or scrap by. I’m talking about how much revenue you need to grow at the rate that you want. It can be easy to overlook certain things when calculating this number. So, let’s look at it more closely. Here is a list of just some of the many things that you should be accounting for:
- Business bills
- Profit savings
- Monthly business subscriptions
This list could go on and on and will be specific to your business. I invite you to create your own list. Write it down. It will be a lot easier when you can see clearly just how much you have to account for.
It is also important to note that you should plan not just for what you have now but what you want to have in the next quarter, next year, and further down the line will help you prepare for the growth you want in your business.
You need to have a strategy in place for growth before you think you need it. Many of my fellow business owners have said to me things like “I will grow when I have more money” They wait and wait for their business to magically take off before doing anything about it.
You have to plan, prepare and work to grow your business. It won’t just come to you and then you can expand your growth strategies.
The growth strategies come before take off. So plan now so you have the money to grow and get that ball rolling!
Pricing Structure Step #2
How much personal income do you need from your business?
There seems to be a never-ending list of investments for our business. I mean, just look at the list of examples I gave in the previous step. We can sometimes get so caught up in the growth of the business itself that we neglect to pay ourselves correctly. This is where your pricing structure comes into play and I promise we are getting there! When looking at the figures, it isn’t just about replacing your day job or investing back into your biz. You really need to know how much you want to take home in order to be living the life you want including traveling, taking time off when you want, going out with friends, and so forth.
If you don’t know how much take-home pay you want from your business chances are you aren’t taking enough, if any.
So, what happens when we do not pay ourselves and just constantly pump all our revenue back into our business? You’ll start to resent what you are doing, start feeling defeated that you aren’t where you want to be and will more than likely burn out, quit or both.
You deserve to be taking in personal income from your business and it should be ample enough to make you feel valued and rewarded for your hard work. And you can’t do any of that if you don’t have your pricing structure set up correctly!
One final piece of advice on this point is to not look at your day job for reference here. You want to exceed it, not match it. If you were that happy with what you were making then, you probably wouldn’t be trying to own a business!!
Pricing Structure Step #3
How many offers do you want to have?
More isn’t necessarily better when it comes to your offers. The most important thing is that your service or product suite makes sense together. Take a look at how many offers you currently have. Are your offers tiered? Ideally, you will want to have a variety of price points which can be beneficial for many reasons. Setting up a pricing structure that has offerings at multiple points helps people access your services at multiple levels.
One, it allows you to upsell or down-sell depending on your prospective client or customer’s needs and means. Two, it can improve customer/client retention as they will have options to move their way up the ladder to work with you, so to speak.
Acquiring a new client will always be more time-consuming and costly than retaining current clients and customers. Outbound Engine gives two stats to show just how true that is:
“Acquiring a new customer can cost five times more than retaining an existing customer.
Increasing customer retention by 5% can increase profits from 25-95%.”
The biggest perk of having your own business is that you get to choose. Do you want a whole range of services that people can choose from? Great! You can set your pricing structure accordingly.
Do you want a limited, curated set of packages? Awesome. Set your pricing structure up for that!
All your offers should be considered when pricing as they all have to add up to your total revenue goal. So don’t piecemeal your product suite together and price each on its own without considering your total offer suite.
Pricing Structure Step #4
How many people do you want to serve?
This can be a really hard thing to get to grips with when running a business. I would say at the beginning, it is one of the hardest! As a new solopreneur, you are ECSTATIC with each and every new client that wants to work with you. Why wouldn’t you be?
Often a sign that you haven’t a good pricing structure or pricing strategy is having way too many clients and still struggle to meet your income goals. This will inevitably lead to burnout and resentment. It won’t only affect you though. You cannot provide a high-quality service/product or course if you are trying to serve too many people.
You need to know how many folks you can serve and serve well. Period.
Once you know this number you can then target your bookings and course launches to fill to that level knowing that you will meet your revenue goals because you factored it into your pricing. It’s a little bit of reverse engineering but this is key to setting up a pricing structure that meets your needs while also meeting your clients/students’ needs.
Figuring this all out doesn’t have to be a mountain. I know finance isn’t everyone’s cup of tea. However, you need to accurately answer those four questions if you want everything that you signed up for when launching your business.
Everything from your daily schedule, to new offers, to copy, to Facebook Ads, gets impacted by the answers to those four questions. If you don’t know the answers, how will you ever know whether you are on track, making the right amount of money to achieve your goals, booking the right clients, and can really rest?
So, where to start? I’ve got you! My Masterclass covers all these steps AND includes an amazing set of calculators for service pros who offer packages, one for hourly folks, and one for course creators!
Want to know more?
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