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Are You Charging Enough for Your Services?

Updated: Jan 4

What you charge for your services is vital to the longevity of your business and one of the most important decisions to make as a business owner. We’ve all heard the old story that most new businesses close their doors within a couple of years. While there are many reasons a business chooses to close, so often it's because it's not generating enough money. You get to determine what to charge for your services, but is it enough? Let's discuss several factors to consider when pricing your services.



Factors to Consider


1) Competition and Industry Find out what competitors and others in your industry charge for similar services. It might seem like a good idea to charge way less than others, but undercutting your competitors by too much can devalue your service and your industry. It can also result in you coming up short in your debt obligations and revenue goals. Charging a higher fee could signal clients you offer better quality services. Conversely, potential clients might seek out more affordable options. Once you become familiar with competitor and industry norms, you’ll need to consider other factors as well.


2) Investment Costs Investment costs are associated with making your services possible.

  • Education/Training

  • Building Purchases

  • Equipment

  • Office Furniture

  • Vehicles

  • Financial Loans

  • Other

Knowing your initial investment can help you determine a very important question: How many clients do I need to see to recoup my investment? For example, if your initial investment into your business is $25,000 and you charge $50 for your services, you would need to see 500 clients before recouping your initial investment. It is important to note that initial investment costs can often be paid for over a period of time versus a one-time payment. Remember it is not your clients’ responsibility to pay off your investment, but it needs to be considered when planning for the long-term financial health of your business. If you have a period of time, say five years, to pay off your investment, you can plan to apply a small amount of each service provided toward your debt obligations over that period of time.


3) Operational and Overhead Costs

It takes money to run a business. Rent, electricity, phone, Wi-Fi, payroll, insurance, supplies, advertising, etc. are all common expenses. Project your regular expenditures to understand what your expense obligations will be on a weekly or monthly basis. If supplies are needed when you provide services to your client, you should factor in the cost of those supplies with your service fee. If it costs you $25 to provide a service, you need to charge at least $25, no less. Side Note: If an insurance provider covers your services, you will need to consider what insurance covers and what is expected of clients to pay out of pocket.

4) Your Capacity

How many clients can you realistically work with in a day or week and still offer top quality services? This greatly depends on your services and number of employees. Some chiropractors can see around 5 clients in an hour depending on the client’s needs. A massage therapist can typically see 1 client in an hour. Know your capacity and what a full day or week of clients looks like for you.


5) Buyer’s Market

What are people willing to pay for your services? This can vary by community and geographical location. Know your audience. Many professionals will argue it is better to work smarter than harder. If you have one client willing to pay you $300, it’s better than three clients willing to pay you $100. This is entirely up to your preferences, the industry, and your capacity. Sometimes service professionals will even increase their prices as their client list grows. It’s like supply and demand: more clients is great (high demand), but that also means less time for you (lower supply), so you can consider if increasing your prices would be more beneficial to you. You do not have to be married to your prices. If changing your prices means offering the best services and experiences for your clients, it should definitely be considered.


6) Quality of Services

Always ensure you are providing quality services. If you are higher priced than your competitors and industry leaders, be ready to highlight what sets you apart from the rest. If you charge similar prices, but aren’t doing as much as your competitors, people will eventually find out and might take their business elsewhere. People appreciate honesty and integrity, which can lead to a lasting customer loyalty.


7) Know Your Financials While there isn’t a concrete timeframe, a new business typically isn’t profitable immediately. Sometimes it can actually take years for a business to be profitable. Understanding the costs associated with operating your business and your capacity to serve clients is necessary. Whether you do your own accounting or hire it out, you must pay close attention to your revenue and expenses so you can make adjustments if necessary.


8) Your Financial Goals

When you decided to provide your services, you expected to get paid for doing it. What type of income are you planning to receive from this business? Much of the revenue a business generates goes back to operating the business, and a portion of that includes your income. Can the prices of your services generate the personal income you desire? You might want to make $100,000 a year, but the price of your services and the capacity to see a certain number of clients could make this impossible. Determine what kind of revenue would be needed for you to realize your desired income.


Application

Now that's we've discussed important factors for pricing services, let’s plug in some numbers with a couple scenarios. Assumed factors in both scenarios: you are operating at capacity, people are willing to pay for your services, and you provide high quality services.


Scenario A – Service Charge Determined

Service Charge: $100/each

Investment Cost: $10,000, paying $2500/yr over 5 years (let’s assume there is interest)

Operational/Overhead Costs: $800/mo. or $9,600 annually

Capacity: 50 clients/mo or 600 clients annually

Annual Income Goal: $60,000


Calculate:

[Clients X Service Charge = Revenue]

600 X $100 = $60,000 annually

[Revenue – Expenses = Net Income (Loss)]

$60,000 – ($2,500 + $9,600)

Net Income: $47,900


As you can see, charging $100 per client comes up short of your $60,000 income goal. Let’s look at Scenario B where the service charge is undetermined.


Scenario B – Service Charge Undetermined

Service Charge: undetermined

Investment Cost: $10,000, paying $2500/yr over 5 years

Operational/Overhead Costs: $800/mo. or $9,600 annually

Capacity: 50 clients/mo or 600 clients annually

Annual Income Goal: $60,000


Calculate:

[Annual Income Goal = Clients(Service Charge) – Expenses] $60,000 = 600(x) - $2,500 - $9,600

$72,100 = 600(x)

$120.17 = x

With this method, we can see that charging $120.17 per service provided would help you realize your $60,000 annual income goal.


Use the calculations in Scenario A with your numbers to project your annual income by including your current service charge. Use Scenario B calculations to determine what you should be charging.


Next Steps

If your calculations in Scenario A has you right where you’d like to be (or above) financially, that’s awesome! If not, or if your calculations in Scenario B are way off from what you are already charging, it is time to re-evaluate your pricing strategy considering the factors we discussed:

  • Competition and Industry

  • Investment Costs

  • Operational and Overhead Costs

  • Your Capacity

  • Buyer’s Market

  • Quality of Services

  • Know Your Financials

  • Your Financial Goals

If you would like additional consult, please contact us to help you. At Qi Unity, we desire businesses providing amazing services to succeed. You deserve to get paid well for your work and make a healthy living. Numbers are easy to understand, but it’s how we get those numbers to change in our favor that’s most important. That’s what we do at Qi Unity. Send us a message at businessconsulting@qiunity.com or call or text (701) 340-4069 for the ultimate business consulting experience.

About the Author:

Serena James, MBA is a holistic healer combining her passions of business and energy into one unique and powerful consulting experience to help you take your business to the next level and beyond. Get your copy of her latest book Vibe Higher geared toward self-awareness and personal growth.

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