Self-employed? How to get paid
Self-employed? How to determine your worth.
At lunch with some other female founders the other day we were talking about money. Now I am happy to talk about money all the time. These are brilliantly successful entrepreneurs who were all in agreement about how hard it is to determine what to charge for services.
One friend chipped in with this great lesson she had learned. She wanted to make her services accessible to all, so when she started she set her price quite low. She sincerely wanted to share her skills and really help people.
She spent a lot of time and had trouble selling her online education program. There were a lot of people coming in, asking for further discounts, payment plans, etc. One day it hit her, she needed to weed out the tyre kickers and doubled her price.
Overnight her business started thriving. The people that came to her were serious and signed up quickly.
Another friend described slipping her price list to her clients via email. She admitted to having a lot of trouble actually getting people to pay.
I suggested having a clear conversation about her fees. After all, people are buying her expertise in her field to save them time and money.
It reminded me that before we go out into the world with our offering we need to know in our hearts that we are worth it. We work hard, provide value, and bring amazing things into the world via our businesses.
I was listening to a podcast the other day (Pru Chapman’s Owners Collective in fact) and was given a surprising stat – female consultants charge 38% less than our male counterparts.
Is this true?
According to the Women in Business report (2015) women's weekly cash income is $998 for women and $1458 for men.
https://pmc.gov.au/sites/default/files/publications/profile_of_australian_women_in_business.pd
Why?
Other stats in that same report tell me the older we get the more likely women are to become self-employed, and across a large number of industries too – management, health, hr, and marketing. In fact, the only two industries that are dominated by male business owners are engineering and architecture.
This almost makes sense to me. For years I have been wondering what happened to all those women in middle management who never make it to an executive level. I feel like I just found them. Leaving workplaces to set our own path!!
“Take the time to define yourself and define your value. If you’re having a hard time doing that, ask yourself: What is something I would say to someone I love?”
Beyoncé
These two stories have been on my mind all week.
I think we accept in building our business there will be a period when building that you won’t be paid, or that your pay will be lower than you are aiming for. It’s easy to discount to win business, to pay yourself last, and to give too much back to win the business, but to what end?
Your business is an extension of you. You are deserving of all the great gifts money has to offer you!
So let's get on it. How do you determine your worth?
Questions you need to ask yourself:
If you were employed doing your job how much would your salary be?
Now add your super and tax
For example, Grace an accountant goes out on her own, but in a corporate role would have earned $180,000 a year plus super $16650
This is a good starting point (particularly if you are a consultant so have no other real overheads).
You always need to know all your numbers.
Remember you need to cover all the expenses to gain and run your business as well.
So how do you work out your break-even point, that point where you start making actual money?
First work out your fixed costs – rent, internet, utilities, other outgoings, wages, you know those things that don’t go away no matter how much money you make.
For example, Rent is $3000 a month, utilities and other outgoings $750, wages for part-time office staff $2000, phone and internet $95
$5845 a month or $70140 a year.
Know variable costs like marketing, advertising, PR travel, entertainment, and other costs of doing business.
Estimate $1500 a month / $18000.
Fixed and Variable costs estimate totals $88,140.
So add in the “wages” and you need to make enough to cover costs of $284,790 a year.
Allow a month for holiday and that gives you a cost of $25890 a month
Or $5975 a week.
38-hour week and that is $157 an hour.
And whether you have a day rate, weekly rate, or hourly rate this gives you an idea of where you might start.
Something to think about!
If you are a product-based business you need to work out how much it costs to produce whatever it is you make – and how much you charge for it.
We are producing tote bags at the moment.
So for each tote bag, we produce it is $7.50 we sell for $12 making $4.50 per item
If your overheads are the same as the previous example ($88,140) / 4.50 = we need to sell 19586 items to break even
Tweak the price up to $15 and we need to sell 11753 to break even
Again I want to remind you ALL of your outgoings need to be covered.
You can compare against other businesses by going to your industry association and benchmarking yourself against other businesses. You can also check out the ATO website for benchmarking information.
When small businesses provide goods or services to another small business the value needs to be evident.
As business owners, we don’t want to spend our hard-earned money for no return so when you are selling your service quantify what value you are bringing.
For example, if we are selling our tote bags our sales goals need to cover the cost of marketing and advertising specialists as well as our fixed business costs and cost of production.
Set your price. Know it, feel it, squish it around in your mind, and write it down.
Does it fit with benchmarks?
Does it cover your costs?
Are you able to define what you will bring to your clients?
Once you know what it is you will be charging say it out loud! Practice your pitch to your clients, because now you have a clear path as to how you got to the number you are asking to be paid you feel good about it. You KNOW you are worth it!!! Let it scare you a little bit...
Now add 10%
For more information:
https://www.ato.gov.au/Business/Small-business-benchmarks/
https://www.amazon.com.au/Profit-First-Transform-Cash-Eating-Money-Making-ebook/dp/B01HCGYTH4