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Raising your prices is something you need to be thinking about as a service provider, but you also need to understand the reasoning behind it — besides the fact that you want to make more money.
I totally understand that when you’re first starting a service based business, getting those first few clients has a lot to do with wanting to gain experience.
Those first few clients are oftentimes the hardest clients to land, and typically, many service providers undercharge and undervalue what they’re offering to those first few clients in order to get experience and gain confidence.
But once you’ve gotten your first few clients under your belt, it’s time to start raising your prices — here’s why:
The value you give your clients comes from the problem you solve. The bigger the problem, the more valuable your services are to your clients, and the more they are willing to pay.
Reason #1
It’s actually easier to find clients who are willing to pay more for your services, especially after you have some experience and are confident in your offerings.
For example, let’s say you’re currently charging $1,000 per month for your services (this is actually the average rate new Advisori Insider Pro members charge their clients because again, they’re just getting started), but your goal is to make $10,000 a month. If you continue to charge all of your clients only $1,000 per month, that means you’re going to need to find, land, manage, and service 10 clients in order to hit your goal. That’s 10 clients at one time! That’s a lot of clients to service and a lot of time that you’re going to need to spend finding and landing those 10 clients.
Now let’s say you raise your prices to $2,500 per month. Instead of needing 10 clients, you now only need four. Not only does that mean you need fewer clients to reach your goal, but now you don’t have to manage and service 10 different clients at once.
To be honest with you, when I got started, I really undervalued my services. As I gained confidence and experience though, I increased my prices. I didn’t change anything about what I was offering — the only difference was that I recognized the value I was bringing to my clients, and that gave me the confidence to increase my prices.
The value you give your clients comes from the problem you solve. The bigger the problem, the more valuable your services are to your clients, and the more they are willing to pay.
If you only looked at the salary of a full time employee doing similar work as you, you’d actually be dramatically undercharging for the value of your work.
Reason #2
Even when raising your prices, you’re still less expensive than hiring an employee (especially in the United States), because so many benefits are the company’s responsibility. Things like retirement, health insurance, and disability.
So what does this mean for you as a solopreneur service provider?
When a company hires an employee, the general rule of thumb is that the employee needs to produce a minimum of three times their salary (in revenue) for the company to cover all of those expenses. If you’re currently making $50,000 at your full-time job, the value of the work that you’re actually doing and the amount of money that you’re bringing in for your employer is worth at least $150,000.
So when you’re being hired as a contractor, as a service provider, you’re actually saving that company a ton of money, which is why you should never use the salary of someone who is doing a similar service to determine what you should be charging your clients. You should be charging the equivalent of the value you are bringing.
If you only looked at the salary of a full time employee doing similar work as you, you’d actually be dramatically undercharging for the value of your work.
Let’s go back to that first example. If you’re making $50,000 a year, you are actually bringing in at least $150,000 to your employer. Again, you have to do that in order for them to be able to cover costs like payroll tax, health insurance, disability and retirement, but if you based your rates off of the salary of a full time employee doing similar work as you, then you would probably only be thinking about charging the equivalent of making $50,000 a year — because that’s what you see from the outside.
If you charge your clients the equivalent of $50,000 a year, that’s only about $24 per hour.
I got that number by dividing $50,000 by 52 weeks, by 40 hours a week. So again, if you only look at the salary, that’s only $24 an hour — but if you look at all of the other things that an employer has to pay for, and the actual revenue your job is bringing in, that company at (a minimum) $150,000 a year is equivalent to $72 an hour.
Now I never recommend charging by the hour because we want to charge based on value, but you can see just from this example, and understanding how much an employee actually costs an employer, that if you only looked at the salary of someone doing a similar thing as you, you would be cutting yourself really, really short.
You’re a lot less likely to discount your prices when you know why you’re charging that rate, instead of just picking a random number that sounds good, or basing it off of something you found on a competitor’s website.
Reason #3
Raising your prices gives you more breathing room and time to actually work on your business, not just on client services.
I am a firm believer in the 50/50 method — that you should be spending 50% of your time working on growing your business, and 50% of your time on your clients.
This is something I teach to our members inside Successful Solopreneur School when we’re teaching them how to work 25 hours a week; 50% of those hours are going towards growth activities, and 50% are going towards client work.
Growing your business can include activities like updating your website, going to networking events or conferences, guest speaking on podcasts, or even pursuing new revenue streams, like creating a course or membership — but it’s really hard to create this breathing room and give yourself the time to work on growing your own business when you’re bogged down with low paying clients.
The Bottom Line
I understand that raising your prices can be really scary, but it’s a lot less scary when you have reasoning behind it. You’re also a lot less likely to discount your prices when you know why you’re charging that rate, instead of just picking a random number that sounds good, or basing it off of something you found on a competitor’s website.
You should raise your prices — you have experience. You can get your clients results. It’s time to start charging like the expert you are!
If you want help learning how to increase your prices and make the money you want without having to work 24/7, I highly recommend checking out Successful Solopreneur School. You can learn more about the program here.
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