3 Ways To Establishing a Price Point Clients Are Happy To Pay
How the heck do these people come up with their prices?
Today is going to be all about the three powerful ways for you to establish your price point in your business.
If you're in the professional services industry you have to establish your price points in a way that gives you freedom and security.
Typically, the price point is going to reflect the amount of hours, the value, the work, the results...but it's also going to reflect the amount of time that you want to invest into your business.
Meaning, if you want to be in control of your business, you must set boundaries, establish guidelines and have a daily routine that empowers you so you know that you're in control.
The first thing you'll want to do is know the amount of time you'd like to spend with each client.
For us, we spend an hour with each of our clients, each and every week. Some of them we only meet with every other week, but for the majority, for example purposes, let's just go ahead and say it's once per week; for one hour per meeting.
Do you want to work one day, two days, three days, six days? Whatever it is that you want to do is totally fine here.
There's no wrong or right answers. I'm just giving you the formula.
In order for this process to work, you must know how much time you will spend per client, how many days per week you'll work with them, how many times per month you'll meet them, what days per week are you going to meet them and what are the hours going to be.
Let's get right into it and figure out what your number is...
The Formula: Part 1 (Know Your Numbers)
For us, we meet with clients six days per week for five hours per day (one hour per client); that equals 30 hours per week - you'll see I add a buffer window below.
Thirty hours per week divided by two hours (for each client) equals 15, which is the magic number of clients we can work with each week.
Now the reason why I divided by two hours (even though I said I meet with clients for only one hour) is because I want to give myself a buffer time in between meetings.
I don't want to just hop from meeting to meeting to meeting to meeting.
If I'm looking to have all my meetings in one day, then I must have an hour break in between meetings for prep and for meetings that last longer than expected.
That only allows me to have a certain amount of meetings per week.
I can only have 15 client meetings per week if I want to only work 30 hours per week with my clients, and IF I want to have a two-hour (buffer) window between each meeting.
Sometimes meetings might go over 15 minutes...and if it goes over you don't want to put yourself in that pressured situation where you just feel like you got to hurry up and get done with one client, so you can get right onto the next.
I've done that myself and it's stressful. Make sure to give yourself a little bit of a buffer time between clients.
This step is all about understanding the time that we need to spend with each client and breaking that down to how many clients we're going to be meeting with each week - based off of that time.
Let's move onto...
The Formula: Part 2 (Estimate All Current & Future Expenses)
You must know what your expenses are each month.
Here's an example.
Write the numbers down that you want to aspire to. If you're paying $1,500 a month in rent right now and you're thinking in your head, "Wow, I'd love to really have a house on more land and I'd be happy paying about $10,000 a month if I was making more".
...then put the larger number down. This is the goal for you hit.
Let's get to the numbers real quick.
You have rent/mortgage, you'll probably have a small staff, (you're virtual assistants, video production, or whoever you're paying people to make things for you, do things for you.)
Then you have your cars (transportation), which includes insurance. You'll have your monthly business miscellaneous (i.e. paper, ink, computers, updates, software, etc).
You also have your household miscellaneous, things that are going to be coming up unexpected, leaking refrigerator, replace the TV, etc...
Then we have "the fun stuff." (very important to include this into your monthly cost)
That would be things that are going to cost money, that are going to be fun for you and your family to enjoy. For example, let's say your "fun number" is $2,000 per month.
Next, we have food costs and let's say it's $2,000 a month. That might be a little high, but like I said, make sure that your numbers match where you want to be, and how you want to live. (not your current situation)
You might also have private school or college you're putting your kids through, and that might be $2,500 a month for that.
Finally, you'll add the vacation fund. Lets imagine that number is $5,000 a month.
How cool would it be to have $5,000 a month to go and vacation with your friends and family wherever you want?
This is something you'll want to add into your budget so you know that when you start to acquire these clients, this is already added in.
This way you'll know that when you sell one package or when you get one new client that it's going to be putting money towards your family vacations as well as all other expenses.
The Formula: Part 3 (Advertising Budget + Taxes)
Often people don't put these into their budget, and they wonder why they cannot scale.
Using the numbers from today's example, we are looking at $33,000 per month so far. This number might sound like a lot if you've never made that much before, but let's break it down ever further.
(almost done...stay with me now)
Now we'll focus on the back end. We already know the amount of time you want to spend with each client, and we now better understand your monthly expenses.
Next is understanding your taxes, investments and monthly revenue. In todays example we have $33,500 needed in monthly revenue (so far), which is the number that we got from all of our monthly expenses above.
For the tax number, we're going to multiply that number by 20% (average taxes for small businesses).
This might be be a little high and you could get it down to 10% or 15%. You might not even owe anything if you're in your first couple of years - because of write offs and deductions.
Use this as an example because if you have money leftover at the end of the year you're going to be a lot happier than if you owe money.
Okay, back to the numbers...the 20% for taxes means an extra $6,700 per month.
That brings the total revenue needed, if we want to keep this as our end goal, to $40,200 monthly.
Next, we want to add $5,000 per month for future investments.
If you're looking to purchase multi-family homes in the future, if you're looking to invest further into your business, if you're looking to grow a new business, whatever it is...you'll want to have this dedicated account to invest with.
So not just savings to save. It's saving to invest.
At the end of the year, you'll now have $60,000 saved for investments. You can invest into a start-up, expand your current business or create a new one. There's a lot more freedom this way.
That's going to bring the total needed to $45,200 in monthly revenue.
Then, we add in the ad costs. From our experience 20% of your revenue should go directly back into marketing.
$45,200 x 20% (ad costs) = $9,040
Total revenue needed for you to walk away with over $33,000 in profits, you'll need to generate $54,240 in monthly revenue.
Finally, we're going to divide that number by the magic number. (15 clients)
This will show us the amount each client needs to pay you so that you're only working 30 hours per week and you're taking home a total revenue of $45,200.
First, divide 15 (number of clients) into $45,200 (total revenue needed for EVERYTHING) and that gives you your number of $3,616.00 per month.
This is the number you'll need to charge each client so you can have a business and the lifestyle you'd like.
You might be thinking to yourself, "How am I ever going to find people who will pay me $3600 per month?"
What you'll want to look for is prospects that have products or services with prices that are being sold for more than $3,600. When you have clients like that, all you have to do is help them make two extra sales per month and your price is 100% justified.
(after that it comes down to, if they like you, trust you and have confidence in themselves)
You can literally tell them that, "My cost is negligible because for every $3600 you invest into our business, we're giving you back at least double."
So at the end of the year you've gotten them back two, three, four or five times their investment; which is huge for any business owner to understand and see that path.
They need to see at the end of the year, what was my return on my investment?
When you're clear on how much time that you offer each client, you understand your expenses, you get your taxes, your investments, you get your monthly revenue total, and you divide that by the number of clients you can work with; you're going to know exactly what price point to set your service and your products at.
This could change at any time. (so be prepared to make a change)
You can increase it; which I suggest to do every 1 to 2 years.
If you're not looking to live a lavish lifestyle, maybe you're shooting for $15,000 per month. Whatever it is, the number above is going to change to reflect the lifestyle you're creating for yourself.
You might find you only need four clients, or you might need 10 clients to only pay you a thousand dollars a month. After you figure it out, all you have to do is put the marketing plan into action.
Start marketing (paid advertising, social media, emails, etc) to those people who can afford your service.
I encourage you to start this right now and see what your price point must be so you can create the quality of life you desire.
If you'd like to see how to attract the perfect clients that are not worried about price - but more about the results you can deliver, schedule your time to meet with me right here and we'll create an entire game plan for you... (no charge)
We'll dive into your current marketing strategy and help you develop a knock out plan to not only attract new leads, but to also how to convert them in to long term clients.