What’s the going rate?
That’s the question I asked years ago when I started my first business.
It’s a fair question to ask and a fair place to start if you’re new at small business. If you sell phlegaboles (just made that up) it’s certainly a good idea to know what the competition is charging, right? The problem is that many new business owners look around at what others charge and then choose a number either in the middle or at the bottom of the pricing range.
It’s been many years since I set my rates for the first time and I’ve learned many good (and difficult) lessons. It’s easy now with 20/20 vision to look back and spot my weaknesses..in fact, I’m much smarter than that guy from the past!
Here are 3 things I would tell myself back then if I had the chance. Hopefully, one of these helps you!
1. Stop Trying to Carry a Heavy Pack
As a Marine, I always preferred carrying a lighter pack to a heavy one. Throwing 80-100 or more pounds on your back and stomping through deserts and mountains sucks. Many business owners are in a hurry to add staff, computers, nice office furniture and people to their company. They do this because they are looking to feel good about themselves or their business. They are trying to seem bigger or better than what they are now and in essence they’re purposely adding weight to their pack (overhead).
We ran our painting company out of a 12×14 room in my basement until we were at just under a million in revenue. Then, we moved out and added weight to the pack.
I wish we would’ve stayed in the basement longer because it was working just fine. Instead of trying to carry more weight, see how far you can go with less…and watch your profit grow.
2. Always Know What It Really Costs You
Whatever your product or service is, you must know how much money you need to pay in order to deliver on your promises. This is different than Overhead. Overhead gets paid even if you don’t produce any of your stuff. What we’re talking about here is your Cost of Goods Sold (COGS). If you design websites and hire a Coder Dude for $500 to help you, this is one of your COGS. This is a cost of yours now.
Most new business owners do too much guessing on what it really costs to produce their ‘thing.’ Knowing this also relates to how hard or easy it is to carry your pack. See this article to ‘splain it more.
3. Pick a Side & Stay There
I started out wanting to add a ton of value (best service & product) and charge more than everyone else.
Then I needed to buy groceries.
That’s reality right? It’s easy to say you’ll stick to your guns until you really need money.
Here’s the deal, if you are offering the best service, product, cheeseburger or website design then be the highest price. Stay there. Don’t jump back and forth from the higher side to offering discounts and then back again.
This slows down the growth process. It also makes it hard for the market to know what to expect from you. Plus, if you offer amazing work and are giving it away too cheap…you’ll grow bitter.
If you want to be the most affordable, that’s fine. Just make sure you’re not killing yourself to offer the highest value in your industry. Why? Because you want to be affordable! You can’t be the best at what you do and be the cheapest.
Pick a side and proudly stay there.