I wrote this article over a year ago. But I am amazed at the number of times it has been read --- in these times of financial uncertainty, value for your money is even more important. Maybe you could benefit from the "old" advice below. Remember --- you get what you pay for --- my Mom's advise still rings true: Be careful what you wish for . . . you might just get it!
Sir James Goldsmith, a European industrialist known for his flamboyant and outrageous reputation, is attributed with the quote: “If you pay peanuts, you get monkeys.” As I came across this quote a few days ago in a notes file I keep for writing inspiration, I couldn't help but think how well that fits the whole area of small businesses, independent consultants and solopreneurs. If you turn it over in your mind a bit, it applies to both sides of many equations.
Am I The Monkey?
First of all, many individuals running their own businesses find it excruciatingly difficult to charge what they are worth. They undercut their prices hoping that will bring increased business to their doorstep. In the end, the opposite is more likely to happen. Generally what a cut rate implies to people is that you are either extremely new to the profession, or you are not in demand -- which implies inferior service. Neither of these scenarios may be true --- but it's the perception that counts.
Next one must consider how to live on "peanuts." Notice I did not say how to "survive" on peanuts. Why? Because if you are working for yourself you are most likely doing so because you want a better quality of life than you were experiencing while employed by others. Why else would you take on the headaches of marketing, managing, packaging and processing a business with little outside help, difficulty in getting insurance coverage, and a myriad of other wicked issues just waiting to pounce as you round the corner to your "Home Office!" Wanting a better life does not necessarily mean you will make as much money as you did working for someone else. But it DOES imply that you will make enough money to keep the wolves from the door while you enjoy a moderately good time with your family and friends.
If nothing else, you MUST learn how to price your product or services in a fashion which will reimburse you for your investment (materials, time and overhead) and leave you with a reasonable profit. This is the biggest mistake entrepreneurs make and one of the reasons most small businesses fail. If you never cover the cost of the goods you are selling, you are consistently digging into your own pocket to cover costs. Sooner or later you reach the bottom of that pocket and have nowhere to go except back to the corporate world and a regular paycheck.
One of the biggest mistakes independents make is they work on the assumption that they have no overhead. Especially if they provide services rather than an actual product. They feel they have no overhead as they are not purchasing goods to be turned into a product. But that simply is not true. Even if you do not include basics like utility costs, you must still consider telephones, computers, software, automobile maintenance and gasoline, marketing materials, and perhaps packaging of your product. These are all part of your overhead. And these must be taken into account when setting your fees and prices.
Do your research. Talk to others in your field; surf the internet; read trade publications; join appropriate professional organizations. Nearly all of these arenas will provide you with clues for setting your financial margins. Many of these resources will provide you with actual formulas you can use to determine what your prices should be. Try out several of the equations you find. See which ones you feel most comfortable with. Then establish your price/cost grid and publish it to the world.
You will be amazed at how good you feel once you do this. Fear is the biggest reason we undercharge. Fear that someone will say we are not worth what we are charging. In the end, if you are well qualified and have the ability to deliver what you offer, hold your head high and charge an amount that is reasonable.
Organizing Is No Monkey Business!
This will also help you in your attempts to organize your life. How? Well, to begin with, if you produce a product you will know what your parameters are for purchasing components --- in other words, how much you can spend on items which are incorporated into the product. No more guessing as to whether this will be "too much" or whether you will "lose money" on something if you use this part instead of another.
Next, you will no longer have to constantly hem and haw when asked for a price quote for your product or services. You will know what you are going to charge and you will be able to state it quickly and firmly. When you do that, the person on the receiving end will see you as a professional who knows what he/she is doing. If you hem and haw they may think this is merely a hobby for you and look elsewhere for an affiliation. Additionally, because people will know what you charge, only those who can truly afford your services will take up your time discussing their needs.
Don't Be The Monkey Wrench In Someone Else's Business!
Not only will you help yourself, in terms of bringing clients to you who are willing and able to pay, but you will help others in your profession too. When YOU undercharge, clients expect others to undercharge. This creates a domino effect which is of no benefit to anyone. It does nothing to help your professional arena as a whole. When people tell me that working in a certain field isn't productive, I frequently take a long look at WHY it isn't productive. More often than not, someone has started the downward capitulation of that product or service by trying to undercharge others in that field. In the end, they all get lumped in one large bag marked "worthless."
If you feel the need to reward a particular customer for some reason, offer a discount on a particular purchase. This gives the buyer a sense that he has received something unusual and something of value. Perhaps he sent a referral your way. Or maybe your turn-around time was not what it usually is. Whatever that may be, give a one-time-only discount and clearly list it as a discount and the purpose for the discount on your invoice. You will be amazed at the positive response you will get from clients when you handle things in that manner.
Have You Hired A Monkey?
Now, let's look at the opposite side of the coin. As we have discussed here, becoming organized and staying that way means you most likely will need an assistant who can advise you and help you accomplish a myriad of tasks which currently are languishing on your piled-high desk! Virtual Assistants are excellent choices for this because they are generally highly experienced individuals who have spent many years administering, organizing and handling a multitude of tasks in the corporate world. But think about it. Do you want a highly skilled virtual assistant working with you --- or a monkey? Do you want someone you can turn work over to and know that it will get done? Or do you want someone you have to follow around and supervise every day?
The whole point to delegating work is to relieve yourself of the responsibility of that work so that you are free to move forward with other aspects of your business. If you delegate these projects to an inexperienced person not only do you run the risk of having the work done inappropriately, but you also have to spend time checking to make sure the work is actually being done. Even if you only spend 30 minutes a day doing that, in a week's time you have likely lost more billable time then you paid this person to do your work.
For instance, let's say you are a consultant who bills at a rate of $160 per hour. You hire someone inexperienced for $10 an hour to work on several projects for you. Not only will this person likely spend more time completing the projects due to inexperience in that work area, but the time you spend supervising, checking the work, and determining if deadlines are being met will also have to be figured into the equation. Say you hire this person for 20 hours a week --- at $10 per hour that would total $200. If you spend a mere 30 minutes a day supervising this person, you have invested $400 of your own billable time into this project --- that is ON TOP of what you paid this person to do the work for you!
So when you are looking for a virtual assistant to help you with your business, please understand that cheapest is not going to benefit you greatly. In fact, stand back and look at what cheapest means. Would you hire the cheapest doctor or dentist to care for you or your child? Would you hire the cheapest contractor to replace the roof on your house? Would you buy substandard produce simply because it was the cheapest? While in some cases you might accept the lowest bid, it would ONLY be after you checked the provider's qualifications and references to make sure you were really going to get what you paid for.
Don't sell yourself short in hiring people to help you with your business. Make sure you hire quality professionals who know what they are doing. In the end, caviar may be less costly than peanuts!
Today's Assignment: Take a close look at how you price your products and services. Even if you think you are charging enough, break down your product and recalculate what you are charging. If you set your prices a year ago, the economy has changed. It may be time for an incremental price hike. Examine every aspect of your business and make sure that what you are charging gives you a healthy profit margin. Make up a price grid and put copies on your computer, on the wall by your phone, in your briefcase. Don't be ashamed to charge what you are worth. Inversely, make sure you are hiring only professionals who have the experience to advance your business. And make sure you pay them appropriately. Once you do this, you will really be on the road to Organizationville!!