One of the most common struggles entrepreneurs face is knowing how much to charge. There is no one size fits all so I can’t give you an exact number. But, if you’re wondering how to price your services then understanding the thought-process is crucial.
Most of my clients are women and as women, we often have our own issues with money. Whether we believe money is the root of all evil or we get insecure about putting a price tag to our skills, there is always something holding us back from asking the right amount.
In the online entrepreneurship space, we’re fed the false narrative of charging what “we’re worth”. Inherently we came to believe that our personal worth is attached to our price, which means that we get self-righteous about our prices and every rejection feels personal.
Separate Your Worth From Your Price
One of the first things you should let go of is the notion of “pricing what you’re worth”. There is no price tag on your worth and you’re not selling you’re worth either.
Instead, learn to price what your services are worth. Pricing your services should be a decision based on research, data, and calculations. Not on emotions.
When you let your emotions guide your pricing, you’ll always undervalue or overvalue. But, when you let facts guide you, then your price is not only going to be just right, but you can justify it as well.
There are a few key reasons why your price should always be based solely on calculations.
- A data-driven price helps you distance yourself from your price and you’ll be able to handle rejection better.
- When you don’t take rejection personally, you can assess the situation better to make changes accordingly.
- You’ll overcome your insecurity because your price is a reflection of your calculation and not your abilities as a professional.
How to Price Your Services with a Simple Calculation
Learning how to price your services is pure math and simpler than you expect. The formula can change depending on your situation but here’s a basic formula.
Yearly Expenses (business and personal) / Yearly Working Hours = Base Hourly Price
Base Price x 30% = Hourly Price
As an entrepreneur, your business and life costs are all equally relevant. Make a list of all the costs you need to make to run your business the way you would like and have the life you’d like (be realistic). So, not how you’re currently running but how you would eventually like to run it. Maybe right now you don’t invest in programs and courses but would like to once your sales pick up. Then add that cost.
Next, calculate how much time you’d like to work per year. If you want a 32-hour workweek then calculate that on a yearly basis and make sure to subtract all holidays.
This first formula gives you a base hourly price. You can’t go below this hourly price. Now add 30% on top of that as error margin.
Now you can price your services on an hourly rate or you package it for ‘value-based pricing’. The reason why many service-based entrepreneurs offer packages is they can move towards trading value for money instead of time for money. But, even if you choose to offer packages, you still need to use your hourly price to calculate the price of the packages.
Before giving your final price to your clients do some market research to see how your hourly rate compares to the market. How you price your services determines your position. So, you need to know whether you’re the cheaper player, the expensive one, or the average.
Articulating Your Value
The most important part of pricing your services is being able to articulate the value of it to your ideal client. They need to understand why it’s priced the way it is. If you’re positioning your services as an ultra-lux with a hefty price tag, then your ideal client needs to clearly know why they have to choose your services over a cheaper competitor.
What is the quality of the services you offer?
That is the first question you should ask yourself. Quality can mean different things so be really specific on how the quality of your services matches your ideal client sough-after benefits.
This comes back to your service’s value proposition and positioning statement. Your value proposition determines the one thing that your client can expect of you. This can be a really good service, customization, or even efficiency in the process. Your positioning statement states how your services compares to your competitors.
The Added Value
If your worth is not attached to your value, how do you price your services when applying personal branding? With personal branding, your work experience, expertise, personality, core values are all part of your business and your brand experience. However, your branding isn’t the main value your offer. It isn’t the problem your solve and the solution your ideal client seeks.
Your branding is your added value. It’s the reason why they choose you over someone else. A good branding can help you increase your price, but this is still a strategic process and not an emotional one.