So, you built a business. Or maybe you have an idea for one. Either way, excellent! Power to the female founders, am I right? Now, let me ask you some very important questions. Does it fill a need? Do people want what you’re offering? Are they willing to pay for it? Most importantly, did you seek answers to those questions BEFORE you forged ahead?
If not, you’re not alone. Many a female founder has made the mistake of making gut-based decisions that can jeopardize their profitability, rather than letting the numbers—expenses and capital—do the talking.
Knowing your personal expenses, business expenses, and how much capital you need tells you how much you must charge customers to be profitable—which may shape the direction of your business (more on that below.) Assessing these needs is how your competitors determine their pricing. And it’s how you should, too.
Now, let’s talk about the needs that should determine YOUR pricing. There are six of them.
1. Personal “survive” expenses
The name says it all (quite dramatically, if you ask me). Your basic “survive” rate is—shocker—what you need to make to survive. We’re talking about paying your basic bills, for the roof over your head, for food (again, think survival, not splurgy meals at Michelin star restaurants), for transportation. Write them all down, add them all up, and there’s your must-make number.
The name makes it sound scary, but knowing your basic survive number actually is quite empowering. It tells you, without question that you CANNOT compromise on a price that dips below this number, simply because you can’t survive on it. You know those agonizing “should I” or “shouldn’t I” debates you have with yourself over whether you’re asking for too much, or whether you’re being unreasonable by not working with someone on price? Over and done. This is what you need. Period. If someone asks you to bend, the answer is a simple, “Sorry, but no.” Blame it on the number. It doesn’t mind.
2. Personal “thrive” expenses
Speaking of Michelin star restaurants, let’s talk about your “thrive” number. Think “want” instead of “need.” The house, the car, the getaways—all that and savings, too. When you’ve hit your thrive number, you can have all of those things you want, even when you stop working.
Your thrive number should be about four to five times higher than your survive number. If it’s not, aim higher. You deserve it.
3. Business “survive” expenses
Second verse, similar to the first. Just shift your thinking to what basic necessities your business needs to operate. A website, mobile/office phone, office space (maybe not so much these days), utilities, marketing, equipment, perhaps a bare-bones staff—you get the idea.
4. Business “thrive” expenses
Hitting your business “thrive” number means you’ve really made it—no more struggle bus for you. You have the staff you want, you belong to all the best industry groups, you’re traveling (and not staying at the no-tell motel), and so on. Think 3 to 5 years ahead to help keep you focused on your longer-term goals.
5. Working capital
The last thing you need when a one-time or short-term expense pops up is to worry about where you’ll get the money to cover it. That’s what working capital is for. You need to budget for enough working capital to cover day-to-day operating expenses and unforeseen extras, to keep your business running smoothly and your sanity in check.
6. Growth capital
What’s the outcome of a successful business? (Aside from profitability, of course.) Growth. And for that, you need capital. Hence, the name, growth capital. It’s money you’ll use to expand or restructure your business, most often by hiring another “you” to keep what’s good going, while you focus on achieving what’s next. Growth capital will let you hire that person without taking a pay cut—big plus. It will also let you refill your reserves whenever you need to.
Now, the big question: Can my industry support what I need to make?
Once you know what you NEED to make based on the categories outlined above, the million-dollar (hopefully) question is, CAN you make that in the industry you’ve chosen? Will people pay your price for what you’re offering, and make your business profitable?
If the answer is yes, sweet! Nicely done. Carry on with confidence.
If it’s no, you need to make some changes. Wait, are you panicking? Don’t. In this case, change can be a very lucrative thing. You just have to look at the industry and find a niche that allows for a higher price tag.
For example, let’s say you’re a professional organizer and the industry’s standard tops off at $120 per hour. Not bad, but you need to make $250 per hour based on your numbers. What are your options? For one, you can become a KonMari licensed specialist. Those folks make upwards of $200+ per hour. Problem solved. See how that works?
Another option is to stack or scale your company. What the heck does that mean, you ask? It means you have to hire people to do the work you do (and charge customers for) at a lower rate. That way, you can stack the profit margins until you get to the $250 per hour you need.
The bottom line
It’s simple: Know yours. Always make pricing decisions based on the numbers that are specific to YOUR personal and business goals. It’s the only way to get ahead.
Want to know more about making & keeping more money in your business?
Watch our on-demand virtual seminar “Pricing for Profit…in what feels like a discount-driven world.“
