Category: Pricing

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Why you need to increase your prices

A lot of business owners avoid increasing their prices, either because they’re worried about losing clients or because they don’t know how to go about it. Even when they know that they need to increase their prices it is too easy to procrastinate (I’m the queen of procrastination, I have all the excuses)

I’ll cover the ‘how’ in separate tips but today I want to talk about why.

We all started our business for a reason which broadly come into one of three areas:
• Profitability
• Build something valuable to sell at retirement
• Better work – life balance

All of these will benefit from having better prices allowing you to earn more money, increase the value of your business, or to earn more in limited time.

But the real benefit to our clients is that we will have time to provide a quality service. To do things properly and not cut corners. And to run a business that will still be around to help them in future years.

When we provide a quality service our clients benefit, they stay with us, and they refer other people to us. It’s a virtuous circle because everybody wins.

To create the business you want you need to charge the right prices.

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What is business advisory?

As you know I’ve spent the last year writing ‘Changing the Numbers: how to deliver advisory services for success’ to help accountants to provide real help for their business clients. And I’m the first to agree that, whilst all businesses need this service, not everybody can afford to pay for it. (This is why we have free products such as our Better Business webinars for accountants and our Money Matter ones for general business.)

But for those clients that can afford to invest in growing their business then we can do much better than a bit of tax advice at the year end or help completing a loan application. As accountants we have financial training but we also have exposure to hundreds, if not thousands, of businesses as well as running our own.

Accountants who, like me, have worked as Finance Directors or similar will know that their role at the board room table includes much more than ‘just’ accountancy. The topics that I’ve identified include:

1. Vision and values
2. Cash flow
3. Pricing
4. Staffing
5. Efficiency of operation
6. Funding
7. Tax
8. Mergers and acquisitions
9. Marketing
10. Sales
11. Customer services and quality
12. Cost control

Different accountants may offer advice on some or all of these areas depending on knowledge and experience so we need to be clear on those areas.

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New year, new plan

Welcome to the new year. What have you got planned? Incremental business growth, a better work life balance (how long have you been promising yourself that?) or world domination?

Now is a good time to think about what you want and what that means for your business.

Here are some questions to get you underway with your plan:

1. What do you want your life to look like in 5 years time?
2. How much do you want to earn from your business?
3. How much do you need to earn from your business?
4. How many hours per week/month/year do you want to work in your business?

This will give you some idea of how much you need to earn per hour in your business. Don’t forget that you will need to cover your business costs and taxes too.

A good SWOT analysis will help you to decide how to earn the necessary profit. Look at your strengths, your weaknesses, and any opportunities and threats around you. Covid and potential lockdowns can provide both opportunities and threats to your business to make a plan to eliminate or buffer the formers and to be able to take advantage of the latter.

Take a close look at what you are actually doing. What will you sell and to whom? What problems do you solve?

Now you can start on the details of the plan:

1. Sales plan
2. Marketing plan
3. Staffing – who, when and at what level
4. Technology and other resources
5. Premises
6. Other costs
7. Taxes

If you need a hand with any of this then we’re running a Strategic Planning Day on 19 January. We’ll work through templates together to help you come up with your own plan for your best year yet. Email us to sign up.

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Things to think about when pricing

Whilst I would encourage people to value price where possible it is often more practical to quote fixed prices.

Here are some of the things to consider when setting your prices for services:

  • How long will it take?
  • How complex is it?
  • Does it need any particular expertise? And do you need to pay extra for this?
  • How much does it cost in terms of hourly salaries?
  • Can you use software to speed up the work?
  • Are there other costs?
  • How easy is the client is to work with? eg clear specification, providing information promptly, approving promptly and paying on time
  • What is the acquisition cost? (Time and money spent on marketing)
  • What proportion of overheads should be included in the fee?

With  new clients there maybe a lot of unknowns and they may also take time to set up contracts, software, direct debits etc as well as more general familiarisation. These set up costs need to be covered too.

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How much should I save?

How much cash should you leave in your business and how much should you take out?

The generally accepted wisdom is three month’s worth of costs. I don’t know the source of this figure, but this seems about right. If all your income stopped overnight, you would have three months to make plans.

In reality, unless there is a global pandemic, it’s unlikely that your income would all stop at the same time, so you’d probably have longer to find funding, start a new income source, or to ride out a temporary blip. Most income protection insurances take 3-6 months to kick in.

We should also have a similar amount easily accessible to cover our household bills.

The last eighteen months have been tough, but we need to rebuild our reserves ready for the future.

How long would your reserves last you?

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What’s so special about 30 days?

What are your payment terms? Do you even have stated payment terms?

Most businesses seem to opt for 30 days from the end of the month of invoice which means that the wait an average of 45 days to be paid.

But accounting systems are far faster now than when I joined the workplace 30 years ago so surely it’s easier to register, approve and pay invoices much faster now than all that time ago? Personally, as a small business, I find it easier to pay invoices as they arrive to minimise admin time. But not everybody is in such a strong cash position.

My standard payment terms are 7 days from invoice so an average of, well, 7 days. And most of my clients pay me by direct debit which costs a few pennies but the integration between Gocardless and Xero means that it does all the bookkeeping entries to so saving me precious time.

When speaking at conferences I’m always paid the full amount before I travel to the event as organisers like to take a few days off afterwards rather than fuss over invoices.

Is it time to review your payment terms to improve your cash position and, in turn, to pay your suppliers faster?

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Is your business working for you or are you working for your business?

When I started up each of my businesses I had a dream. Not a huge, Martin Luther King type of dream that would change the world, but a smaller dream of helping business owners while having a decent work-life balance for myself.

I wrote down my vision in one sentence. Nothing complex but just to remind me.

And each time I had to make a big decision I came back to my dream to see whether this particular decision would move me closer to my dream.

But often we make a lot of smaller decisions that mean that our business drifts away from that dream and we just end up with a job that we have to do in order to pay the bills. When I work with clients on our individual or group coaching programmes I encourage then to recapture that dream but also to take actions.

Here are some of the actions that you can take:

  • Review your pricing to ensure that you are being paid what you are worth
  • Review your clients to ensure that you are selling to the right people profitably and enjoyably
  • Review the type of work that you are doing to ensure that you are doing profitable AND enjoyable work
  • Review your marketing to ensure that it is all aimed at getting more of the right people and the right work
  • Review how you are spending your time to see if there are things that would be better off delegated or outsourced. How many small business owners are trying to do their accounts at the end of a long week? And how many accountants are doing their own graphic design?

You may prefer to do this on your own but, if you want some accountability, then come along to our monthly Flyby sessions (see below). If you would like more proactive input or specific advice from me then try our coaching programmes.

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What to say when somebody asks for a discount

You spend ages working out the right prices for your business and then somebody asks for a discount!

Before saying yes you need to work out what you get in return. If it’s a discount simply for signing the contract or buying your goods then there is no additional benefit to you.

If they’re buying in bulk then you need to decide whether this will benefit you in the long term. Will they buy more overall or is it just a cashflow benefit? Perhaps they’ll ask for a discount in return for earlier payment which could be useful if you’re short of cash but interest rates are generally fairly low at the moment.

The trouble with discounts is that they become the norm. The individual customer expects them every time and it is hard to increase your prices. You also get into a habit of agreeing to discounts and gradually erode all your careful pricing.

There are very few exceptions when it is appropriate to discount and so you need to be clear what’s in it for you and what you will get in return. Work out your prices and stick to them.

(We discuss pricing more on each of our courses as it is key to a profitable and sustainable business)

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Is work-life balance really achievable?

Yes.

I started, grew and finally sold my first business all while working just an average of 25 hours a week. Some weeks were more but others were less. Here’s what I focused on to do it:

1.   Make it a priority otherwise you’ll drift into overwork habits.
2.   Focus on the non-work option. Mine was 2 small kids – see my Balanced 10 Talk.
3.   Focus while in work – see my articles on Pomodoro Technique etc.
4.   Say no to the wrong type of work – learn about marketing avatars in my books and courses.
5.   Set your prices to ensure that you cover your business and living costs – see my pricing articles and webinars.
6.   Systemise for maximum efficiency – see Scale Up Blueprint talk and course.
7.   Automate where possible.
8.   Delegate to free up your time.

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Trading through the tough times

Some businesses were founded during a recession:
Disney, Microsoft, Google, Facebook and Hudson Business Accountants and Advisers.
 
No matter how bad things are, we all have to do the right things in order to produce the best possible results:

  • Build robust internal systems for maximum efficiency
  • Recruit a service focused team to be the friendly human interface between these systems and clients
  • Be clear on who our ideal customers are and focus our marketing accordingly
  • Have consistent marketing and sales systems rather than relying on good luck
  • Nurture our clients through the early days and reward loyalty
  • Look after ourselves in order to look after everyone and everything else in the business (it’s why I write so much about self care)
  • Look after our team (whether employees, subcontractors or outsourced) so that they will look after our business
  • Get your pricing right

If you can manage through the tough times you will be a roaring success in the good times.

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