Are you undercharging for your services? It can be hard to tell, particularly if you’re in a niche industry or you’re a contractor. Costs have been rising, so it may be time to rethink your own pricing.
Here are five signs that you might be undercharging:
- Nobody ever questions your quotes – Do all your new clients accept your quotes or charges without asking any questions, requesting a breakdown or wanting a discount? It’s possible they’re delighted to be getting such a great deal.
- You’re run off your feet but you can’t afford to get help – When you’re working yourself to the bone, but there’s not enough money left over to employ someone to help you, your prices are too low – or something else needs to change.
- Your prices have been the same for two years or more – In most industries, prices increase just slightly each year. Leave your prices flat for too long and you’re not keeping up with the market; make sure you review your fees annually.
- You’re overbooked – When business is booming and there’s no room for new clients, it’s time to raise your prices.
- Clients don’t treat you as well as they should – When clients think they’re paying peanuts, they’ll often take you for granted. They don’t see your time as valuable, so they feel free to mess you around.
What should you be charging?
Finding your pricing sweet spot could take a little time. You’ll need to do some research, maybe ask around a little, and find out where your competitors are pitching their rates.
You also need to consider your desired future state of your business.
i.e.
- what is your target net profit?
- what is your expected sales volume?
- what is your target gross profit per sale? etc.
Going through an exercise like this can help uncover your product offerings that are underperforming on gross profit margin, or uncover emerging trends in customer purchasing habits that would otherwise go unnoticed in the busy world of running your business.
In service industries we also have techniques available that can assist in determining:
- your optimal labour charge rates, with consideration to your fixed overheads,
- variable costs; and
- productive % capacity of labour (i.e. it will be unlikely that you can charge 100% of time worked by staff, as there will be administrative tasks, annual leave/sick leave etc.).
You need to ensure you are leaving enough profit-margin in your charge rates to invest back into your business, for example: staff training, repairs and maintenance, replacement of obsolete plant and equipment, marketing, improving business management systems etc.
At Ascend Solutions we are trained cloud business management specialists. This includes business systems, cloud software integrations, business process improvement, management accounting, bookkeeping, payroll, and managing your GST and PAYGW needs.
We will help you de-clutter, streamline, and simplify your business.
Get in touch today.