If you have a dream of being an entrepreneur someday, then one of the most important keys to your success is figuring out your pricing. Determining what to charge for your services is a highly personal and individual process. No one has the same costs when factoring in all of your equipment, advertising, workers, etc and no one has the same goals for their lives as you do. Today, we are going to find your bare minimum pricing and find out what you would need to do to reach that.
1. Look to the Future
When determining your rate, start at the end and then work your way back to the beginning. So, let’s start big picture here. What is your goal? Do you want to go full time in a specified amount of time? Do you want to match your current salary at your day job before taking the leap to full time? Do you want a side hobby that gives you your pocket money for the month? Now, how much would you need to take home to do that?
In this step, you should not only think about your financial goals, but your personal goals. Most entrepreneurs don’t want to be their own boss so they can be workaholics for the rest of their lives. If you want to start a business so that you can work from home and stay with your kids on weekdays, don’t lose sight of that. That is your real goal. Because a business that takes you away from your kids will make you unhappy no matter if you own it or if you work for someone else.
2. Calculate your personal and business expenses
Write down all of your personal expenses and all of your business expenses. Think about questions like, would you be willing to live a more frugal lifestyle if it meant going full time in your dream job? Would you need daily coffee trips, a gym membership, and dry cleaning for your professional wardrobe if your business went full time? If you will eventually give up benefits at your day job, you would need to factor in health and dental insurance into your expenses.
Business expenses – Don’t forget to pay any employees, assistants, and interns. Any shipping costs, advertising and marketing expenses, and the costs of making your product or service all should be listed and accounted for.
Personal expenses – Of course you should factor in bills but don’t forget things like your retirement fund, rainy day fund, car registration, various insurance, and also list your “standard luxuries” that you can’t give up or that can’t be eliminated like haircuts, once a month date nights with your spouse, and a small clothes budget (or whatever works for you ;)).
3. How much work is involved?
Think about how many products or services you would have to sell to reach that number. How many would you be willing and able to sell? For some wedding planners, 10 weddings a year is their goal, for others, 35 is their sweet spot. More work = more money but remember your personal goals. Don’t go for 50 weddings in a year just to make your financial goal, you will probably regret it.
4. Math – the moment of truth
The amount you will start with is your goal number. This is probably your personal expenses amount or the amount that you are bringing in right now at your day job.
Add your business expenses to that number.
Divide that number by .7. We do this because we assume that 30% of our revenue will go straight to taxes, meaning that 70% of what we make will go to expenses.
This is your bare minimum total.
Now take into account the number of products or services you want to sell. If you are a planner wanting to work 20 weddings a year, divide that number by 20. This is how much you would need to bring in per wedding. This is the average amount that each of your clients would need to spend to work with you.
5. Work your way up
Of course, in an ideal world, you could shoot for working one day a year and charge $200k for that wedding 😛 but you’d have a hard time finding that one client. We know that you have to start somewhere and if your pricing works out to be something really outlandish like making $200k per wedding then you will need to go back and make adjustments somewhere.
As a growing business, you will feel the need to justify your pricing at every turn and it is a real balance between wanting to find clients and pricing yourself as a professional in your field. You need to have an objective eye to look at your skills, experience, and education to price accordingly.
We are giving you a peek of what we do for pricing as wedding planners aka service providers which means we didn’t go in depth into calculating expenses as far as cost of goods sold aka how much you have to spend on raw materials to create a product. We hope you find this helpful and foundational in building your business!
As a business owner, you have the power to impact people’s lives in a positive way through your products and services! But, if you’re struggling to make a profit, you are not doing yourself a favor, your are not serving your customers well, and you are not serving your family well.
If you have any questions or comments, we’d love to hear them! Comment below or feel free to email us at email@example.com !