Why Defining a Clear Pricing Strategy Should Be a Priority for Your Small Business
As freelancers and small business owners, how many of us can say that we have a clear pricing strategy in place for our business?
There are probably fewer of us out there with a dedicated pricing strategy than I’d like to think! I’m a true believer that strategizing your pricing helps you take both your business and the quality of your personal life to the next level. This is because having a clear pricing strategy brings with it so many benefits.
In this blog post, I’m looking at just some of the advantages that having a defined pricing strategy can offer you. I’m going to start by exploring what a pricing strategy actually is before explaining why having one should be a priority for both you and your business.
What do I mean by pricing strategy?
Let’s start by defining the word ‘strategy’. According to Merriam Webster, a strategy is ‘a carefully developed plan or method for achieving a goal’.
Therefore, a ‘pricing strategy’ is a plan for what you’ll charge so you reach your financial goals. This means that you need to have specific and considered financial goals in order to charge an amount that will allow you to achieve them.
By this definition, a pricing strategy does not involve:
Taking average rates for your industry as your own
Allowing your clients to set the price of your services
Plucking numbers out of thin air
In order for your freelance rates to be strategic, they have to be based on real numbers so that they support you in achieving your goals.
In Charge with Confidence, I help participants set their rates based on the numbers in their businesses. We look at both their business and personal expenses to understand how much they need to be earning per paid client hour to cover their outgoings and hit their financial requirements.
The benefits of having a small business pricing strategy
Once you know how much you need to be earning and you’ve set your prices based on real numbers, you’ll find that there are so many advantages to having a pricing strategy. Here are just some of my favourites that I’ve seen both myself and my mentees benefit from time and again over the years.
The benefits of a pricing strategy for your business
1) You’ll be working towards your version of success
Having a clear pricing strategy means having clear financial goals. If you know exactly what you’re working towards from a financial point of view and why, you’ll be setting prices that align with your version of success.
Many freelancers and small business owners often find themselves setting prices based on other people’s ideas of success. These might involve working long hours and achieving a high turnover, which is completely at odds with working as little as possible in order to be financially comfortable if that’s what you’d prefer.
Having a clear pricing strategy stops you wasting time setting prices that fit with other people’s goals and circumstances. Rather than working towards something you don’t want, you’ll be working towards something that’s more aligned with your vision and values.
2) You’ll have the confidence to say no
When you have a clear pricing strategy based on the numbers, you’ll know the minimum you need to be earning per paid client hour to make ends meet. If you accept anything less than your minimum, you’ll either have to work longer hours or charge other clients more to make up the difference. And if you don’t make up the difference, you won’t be able to pay for everything you need in your business and private life.
When you know that this is the trade-off, it can make it far easier to say no to projects that won’t pay at least your minimum hourly rate. You’ll have the confidence to negotiate with a clear minimum you won’t go below, and you’ll find it easier to walk away from clients and projects that aren’t worth your while.
3) You’ll be able to identify your ideal client
Having an income goal as part of your pricing strategy will help you identify your ideal client. This is because, if you know how much you need to be charging, you can target those clients who are likely to have the budget to pay that amount.
For example, you might find that private individuals or agency clients are unable to pay your rates, whereas direct clients or large multinational companies might have the type of budgets that allow them to pay what you’re asking for.
Having a pricing strategy will help you get really clear on who you’re targeting, which will also help strengthen your marketing.
4) You’ll save time when preparing quotes
Every time you put a quote together for your business, you’ll save time because you’ll have a clear basis for your pricing. You’ll know exactly how much you need to be earning from a project, which will make it easier for you to determine how much to charge.
You won’t spend time second-guessing yourself or grappling for numbers; you’ll know how to calculate your price for the project and how much to ask for.
5) You’ll have funds available when you need them
Developing a pricing strategy for your business involves budgeting for your expenses. When you set a budget for your business, you’ll make sure you account for all the things you may want or need to spend money on.
This means no nasty surprises or suddenly realising that you don’t have the funds in your account to cover everything you need to pay for this month. Instead, you’ll be keeping on top of your expenses, so you’ll have the funds available when you need them.
The benefits of a pricing strategy for you
1) You’ll be working towards your version of success
This may well have been the first benefit I shared for your business, but working towards your version of success is just as important for you personally. Not only does having a pricing strategy give you clarity in terms of the direction you’re taking your business in, it also helps you improve the quality of your life.
Heading towards your version of success will leave you feeling more satisfied in your work while eventually allowing you to achieve your personal goals in terms of what success means to you.
2) You’ll have fewer sleepless nights
Having a clear pricing strategy and charging an amount that allows you to fulfil your financial requirements will also reduce your stress levels. If you know that your prices will enable you to make ends meet, you won’t find yourself worrying or waking up in a cold sweat in the middle of the night due to a lack of income.
Instead, you’ll know that you’re earning enough, meaning that any sleepless nights will be down to something else!
3) You’ll be able to take time off
Through your pricing strategy, you’ll set your prices with a healthy and sustainable capacity in mind. You’ll take holiday and sick leave into consideration, and you won’t imagine working through the night without taking any time off at all!
If you know you’re earning enough and that you’ve already accounted for days when you won’t be working within your prices, you’ll feel more able to take time off when you need it.
4) You’ll be able to set money aside for retirement
When you set your financial goals to define your pricing strategy, you’ll also think about saving for retirement. However you decide to provide for yourself in the future, you’ll be ensuring you’re making enough money to set the funds you’ll need to one side.
Setting money aside for your retirement means that you’ll be able to stop working one day without having to worry or struggle financially.
5) You’ll have the capacity to help others
Having a clear pricing strategy to ensure you’re earning enough will give you the capacity to help others if that’s what you want to do. This could mean offering financial support or sharing your time with other people or causes. If you know your own needs are already being met, you’ll be in a far better position to give to other people.
You can build donations to charity or volunteering work into your pricing calculations so that you’re able to offer support in the best possible way.
I hope I’ve managed to convince you of the benefits of having a clear pricing strategy, both for yourself and for your business. In fact, given all the advantages involved, if you don’t already have a pricing strategy, defining one really should be a priority. Given all the benefits and the amount of time and effort you’ll save heading in the right direction, can you really afford not to work on your pricing strategy?
If you’d like some support to develop a pricing strategy for you and your business, Charge with Confidence will provide you with all the tools you need. During the programme, we’ll look at your business expenses and personal outgoings as well as planning for retirement and taking time off. I’ll help you establish how much you need to be earning in order to achieve your financial goals, which will also support your personal goals.