7 Reasons You Should Charge More in Your Business
During the state of emergency in the United States, I’ve seen over a dozen small local businesses I’d personally frequented close their doors permanently.
This obviously isn’t where we hoped we’d be back in March when the scare began—in fact, most of businesses seemed only too happy to do their part to keep the world safe, believing (as many did) that the length of time they’d be “taking a break” would last 3-5 weeks, tops.
It actually kind-of felt like a hard-earned period of rest.
But over four months later, a home goods store on a popular commercial street is selling its last wares at 80% off original price; a popular event space held its last hurrah on July 31; a bakery that had worked its way from a borrowed kitchen space up to a two-floor catering and dining business has closed up shop; and the list goes on. Desperate “Help us keep our doors open!” emails are flooding inboxes, and GoFundMe campaigns are launching left and right to bolster community watering holes.
Perhaps this is why I’m thinking so much recently about what it takes to keep a business alive.
There is no “secret recipe” for success. As the adage goes, if it was simple, everyone would be doing it!… But there are a few hard-earned lessons that the majority of business owners face at one time or other. And there’s no better time than a pandemic than to talk about what those are. Maybe not all in one blog post, but certainly one at a time.
The first lesson is this: You might not be charging enough.
Money is such a touchy topic for many that this reality doesn’t get talked about enough. Running a business costs a lot of money. What you put in isn’t equal to the money to spend on materials—indeed, materials may even be the cheapest expense you have! But because too many businesses try to keep their prices low enough to keep a patronage, they’re violating the Dave Ramsey rule: If you’re surviving paycheck to paycheck and month to month, you’re living beyond your means.
While this is a mindset issue at heart, and mindset is not something I specialize in, especially when it comes to money, I can offer at least 7 reasons you probably need to charge more in your business, so that it can survive when something—big or small—happens.
REASON #1: YOUR BUSINESS COSTS MORE TO RUN THAN YOU REALIZE
Businesses cost so much money. When I started a photography business, I thought my overhead was basically covered because I already had a camera—but every single month since I launched, I have continued to invest into my business, and most of it has been essential.
In my previous life, it was easier to see how expensive a business was to run because the business I was running was a café and bakery where we purchased butter, milk, and eggs in weekly quantities that would give you heart failure; we’d go through thousands of to-go cups in a week and a half; and the electric bill to keep the lights on, run the espresso machine, and operate multiple ovens was more than we paid in rent.
Even as a creative business owner who can invest little by little, however, you’re spending more than the hobby creative who uses all the same tools. When a client wants a custom project, you have to pay for the upgrade in equipment or the outside help or specialized training to get that job done. Your website and domain cost money, as do accounts with companies like DropBox, Zoom, Asana, and Flodesk. You’re the one who has to pay for coffee meetings, tolls, and parking passes—not your boss. And you can’t spend 40 hours a week just working on creative projects—you have to market yourself, network, balance your receipts, and everything else, too! So the time you actually make money is significantly reduced from back when you worked for someone else.
If you’re not pricing yourself accordingly, your business will drown.
REASON #2: YOUR CLIENTS ALREADY DECIDED DOING IT CHEAPER ON THEIR OWN WASN’T WORTH THE EFFORT
Makers, bakers, and corner-coffee-shop keepers tend to make the same mistake in their early days of operation: Assuming that retail value can be just a notch about COGS, or cost of goods sold. The earlier they figure out it’s a mistake, the better.
COGS is the total cost of materials it takes to provide a product; it’s the cost someone else might pay if they decided to do the work themselves. But’s less than half of what you ought to be charging as a business (in most cases) for the goods you provide.
If people always wanted to do the work themselves—to spend money only on materials, and their time on labor—then businesses wouldn’t exist. People pay every day for jewelry they could have made, car maintenance they could have done themselves, coffee they could have had at home, all because it was worth paying a little extra for someone else to do it.
Whether it’s because they don’t feel they’d do the job as well, or they don’t want to get their hands dirty, or they want to use their limited time on earth doing other things, people will pay to have someone else make, handle, or provide certain amenities.
Your business provides such amenities, so you get to charge a premium.
REASON #3: PEOPLE GHOST YOU (OR STEAL FROM YOU), AND THEN YOU’RE JUST OUT THE MONEY
This photo of Alexis by Kate Walsh Loss
I expected when the state of emergency was declared that some of my clients would ghost me. Fortunately, only one of them did, and the matter to settle between us was no more than a few hundred dollars, so I was okay. However, if your pricing isn’t structured properly, then a few hundred dollars could make or break your business—and that’s not good.
Now, ghosting may be something you think you never have to worry about if you’re in, say, food service or retail. But you still get this sort of treatment when a customer decides to “dine and dash,” or your store is targeted by a merry band of shoplifters, or your cash registers are emptied by a disgruntled employee.
Sad though it is to say, every business experiences some sort of theft—and whether it’s covered by insurance or by a wide profit margin, someone has to pay for that. Your prices are where you make money, so set them accordingly.
REASON #4: IF YOU WANT TO SURVIVE EXTREME CIRCUMSTANCES, YOU NEED TO MAKE ENOUGH TO HAVE AN EMERGENCY FUND
Equipment breaks. Buildings burn and flood. Medical emergencies arise. Pandemics are declared.
We always hope these things won’t happen, but not preparing is a separate thing.
How much is enough to set aside? I’m not sure I’m the one to say. Some say the total amount it takes to run your business for 3 months is a good place to start. Others say 6 months, or a year. I think it can feel a little big to wrap your mind around these numbers if you’re not used to having money conversations.
Perhaps start by setting aside 5% of every transaction, then 10%. Put this into an emergencies-only fund, so that you don’t really look at it unless something comes up, and it’s separated from everything else you earn. Then, once you’re in the habit of saving, start setting milestone goals.
REASON #5: YOU CAN’T RUN SALES, OFFER A FRIENDS-AND-FAMILY-DISCOUNT, DONATE, OR RUN GIVEAWAYS IF YOU DON’T HAVE THE MARGIN
All of us want to be able to do good—but so often we feel constrained because of money.
Pricing your goods and services such that you can do philanthropic work when the opportunity presents itself is a gift that keeps on giving. When you’re able to help a non-profit, someone who needs help, or otherwise do good because you’ve got a little money to play with, not only does that good ripple out for the benefit of others—it often shines back well on you. More people get to experience what it’s like to work with your business, more people hear about you, and in the end, you often get more business.
Plus, if you price yourself too low, you’ll never be able to run flash sales and promotions that get new people excited about your business. Ever feel like you really miss out when all sorts of competitors—or even just other businesses in general—run specials around the holidays? Maybe the reason you can’t is because your prices are too low the rest of the year!
Charging even 10% more can make all the difference.
REASON #6: WHEN OPPORTUNITIES COME AROUND TO SCALE OR EXPAND, YOU USUALLY NEED MONEY TO DO IT
I recently saw an opportunity to absorb another business, but in the end I didn’t pursue it because I thought it order to do it well, I’d need $10,000 more than I had available.
It wasn’t a good feeling, especially when someone else ended up capitalizing on the idea because they did have the funds!
While I am mature enough to be happy for the other business owner, I also feel I should view this experience as a challenge to do better setting side money for opportunities that only come around every so often—the opportunity to work with a renowned coach, the opportunity to expand to a new location, the opportunity to add a product line or even invent a product. All these things take not only time and brand recognition, but overhead.
If you’re in business and it hasn’t already happened, trust me when I say that a day will come that you want to grow—and you’re going to need money to do it. So price yourself right to start planning now!
REASON #7: EMPLOYEE BENEFITS, TAXES, INSURANCE, AND REPAIRS ALL COST MONEY
When I conducted the interview process for my first-ever hire, every candidate asked me the same question that I had not prepared for: “What benefits do you provide?”
After spending years working for less-than-livable wages, I had waited to make a hire until I knew I could pay twice what my first job had paid me. I figured a respectable job was worth a respectable wage. But I hadn’t even considered that my first hire would want me to match investment into their 401K, offer health insurance, or anything else like that.
And suddenly I realized why other employers started their employees so low: Because benefits cost money.
Other things that cost money? Taxes. Routine maintenance on supplies. Periodic upgrades to devices. Insurance. The list goes on and on! And these aren’t one-time purchases; no, they are on-going and/or recurring expenses that young business owners don’t always take into account.
But you know better now, right? You’re not going to make that mistake. You’re going to price yourself where it scares you a little. You’re going to talk with a free business mentor at Score or read up on your industry for appropriate pricing, because you know now that Businesses Cost Money.
What do you think? Was this post helpful? If so, make sure to pin it so you’ll never lose it! Then leave me a comment below. Did you have a breakthrough? What are you going to change? I’d love to hear and share some of the best stories over on Instagram!
HELLO! MY NAME IS ALEXIS.
Coffee lover, day dreamer, foodie, and creative. I believe in doing what you can with what you have where you are. I blog to help you do more with what you have. I hope you love it here!
