Running a business is hard to do. Keeping it profitable is even harder.
As creatives a lot of us have a hard time charging what we are truly worth for our products and services.
We forget to calculate one major thing into our equation. And usually that one thing is the actual TIME it takes to get from inquiry to delivered goods.
We pour our hearts and souls into the work we create, right? And while we love it, the bills don’t pay themselves.
So my goal is to get you to a place of profit in your business, a place where you are getting paid what you are worth for the amount of time that you spend on your clients and away from your kiddos.
Here’s a few things you need to sit down and figure out for yourself:
How much do you want to bring home?
How much do you need to contribute to your household?
How many clients or projects can you physically take on each month?
What does your average sale need to be? What is it now?
How much does it cost to deliver a finished product or service to your client?
How much does it cost to run your business month to month?
When you can answer these questions we can get closer to knowing how much you should charge for your creative products and services.
Let’s get started!
Step 1 | How much do you want to bring home?
Before you can figure out how much you want to bring home, you need to know your household expenses each month. You may already know this, but if not, you have a little more homework to do. Once you know your monthly household expenses, decide how much you personally need to contribute towards those expenses. Don’t forget savings!
Let me go ahead and say it, you deserve a salary! I went way too many years without one. I basically had an expensive hobby. I was not running a business. Please don’t let this be you. There are bills to pay and you want to retire one day, right?
Household Expenses: _______________ (yearly) _______________ (monthly)
How much do you need to contribute toward those expenses? ______________
Let’s say you want to make $50k a year to contribute to your family. That’s great! But first, there are taxes and business expenses we need to talk about.
Your sales do not equal cash in the bank money.
For the sake of plugging easy numbers, we will say your taxes are around 25% and your expenses are probably another 25%.
Do you know what that means?
That means you need to have revenue (sales) of 100k to bring home the 50k that you want. Ouch! That’s a little higher than you thought, huh? And probably seems a lot tougher to bring in. Let’s keep going and figure it out, ok?
Step 2 | How many clients or projects can you take on each month?
We are all in different places in our lives. Some of us have to make this side hustle work so that we can contribute to our families. Some of us have spouses with adequate income and our side hustle is just for us. Maybe your family isn’t dependent on it. Even still, you don’t do this just for fun, do you? If you do, it won’t be fun for long.
Maybe you have a newborn. That’s a tough time to start or run a business. Maybe you have 3 kids elementary school age and younger. Maybe you are taking care of your elderly parents.
I say all of this because I don’t want you to beat yourself up about what one person is doing versus what you can do right now. There are so many different seasons of life. Enjoy the one you are in to the fullest.
Ok? So now that we have that out of the way . . .
How much time do you really have to devote to your business each day / week / month? Can you handle a 40 hour work week? Or is it more like 20? _________________
How many clients do you want to take on each month? ________________
And how many hours does it take you to bring a client from inquiry to delivered product / service? Be honest when you answer this one please! _________________
If it takes you 10 hours per client and you can only work 20 - 30 hours a week, you can only take on 2 clients. This is going to help you know how much you need to make per client.
Step 3 | What does your average sale need to be?
Every business is different. I get that.
Maybe you are a photographer and this number will be based on sessions. Maybe you are a graphic designer and your sales goal will be per design client. Maybe you’re a coach or even a seller on etsy and this number is what you need to sell your widgets for.
This will work with any business. But we need to know what your average sale is. If you don’t know this number plug in what you would like to be making. If you do know, be sure to be honest.
Remember that 100k that you needed in sales to bring home 50k?
What was your number of clients that you can take on each year? Maybe 50? That’s one client per week. Is that doable?
100k / 50 clients = 2000 average sale needed
100k / 200 courses = 500 average sale needed
100k / 5000 widgets = 20 average sale needed
Play around with these numbers. Maybe you could take on more clients so that your sale doesn’t need to be so high. Or maybe you could get your sale higher and take on less clients. That’s always the direction I want to go.
Step 4 | What are your average COGS?
Please forgive me if I am talking down to you. I am not trying to! But COGS is Cost of Goods Sold. Basically, how much does it actually cost you to deliver the goods or services?
You will never know if you are profitable if you don’t know how much your business is costing you! I can’t say it enough.
Again this is different for every industry, but I like to keep mine (at our photography studio) below 15% of sales.
This would include my lab printing costs, physical products, packaging, shipping and outside services like editing and design work. This is what it costs me to deliver my photography services and final portrait products.
Knowing these numbers helps me price my individual products offered in the studio. As long as I keep them under that 15% COGS I should be good to go.
Step 5 | How much does it cost to run your creative business?
Hey real quick here . . . Not having a physical product doesn’t mean you don’t have any costs. This is such a HUGE misconception and the reason why so many small businesses fail. And the reason so many work from home creative moms are burnt out and resentful of their clients. See my post on avoiding burnout here :)
Make a list of ALL of your expenses. Here are some common ones:
Bank / credit card fees
Client & vendor gifts
Dues & subscriptions
Forums & professional memberships
Marketing / facebook ads / welcome packets
Travel & entertainment
VA / assistant
Website / hosting
Once you have this yearly total, divide it by 12 for a monthly cost of running business.
You have to cover this number PLUS your salary needs each month! Along with COGS and putting a little back into the business.
We know how much you need to bring home: 50k
We know how much your sales need to be: 100k
Your taxes around around: 25k
Your expenses are around: 25k (this should include your costs of goods sold)
We know the number of clients you can handle each year: 50 clients
Step 6 | So how do you price yourself to get to these numbers?
Let’s talk about 2 common mistakes in pricing yourself for just a minute.
NOT setting your price based on real numbers, grabbing a price out of thin air.
Setting prices based off what your competition charges.
Pricing yourself based solely on your experience. Yes, price should reflect your experience (to a point), but your pricing should not devalue the hard work of others in your industry.
You need to bring home 50k. Your AVERAGE sale needs to be 2000k. Some will be higher. Some will be lower. But you definitely want to control the sale with your pricing. I do this with having minimum orders and with having my collections (packages) start at a number I am happy with. Now that collection does not have much in it (and it’s basically a la carte pricing) just to move them up to the next highest collection. This is the one I really want them at. Anything higher is just gravy :)
Generally, a good goal to shoot for would be pricing your products so that your product costs 25% of what you sell it for.
If something costs you $100 to make it, you need to price it at $400. You will multiply by 4 or more to price your products.
How do you price your time?
Please do not forget this part of the equation! You are valuable! Your time is valuable!
A typical work week is 40 hours. In a year that comes to 1840 hours. Now, I gave us 6 weeks of vacation here, because umm, come on. We are moms running businesses in a not so perfect world full of broken arms, stomach bugs and interrupted nap time schedules. Right?
So, 100k / 1840 hours = $54.35 an hour. That is how much you need to charge per hour to create something. But that is in the perfect world of every single hour being billable. We all know that is not true. It’s more like 50% of those hours you are doing actual client work, so I am going to round some numbers and say your time is worth $100 / hour.
If something takes you 10 hours to complete and you have $100 costs of good sold in that product (website design / album / wedding / branding service / photo session with digital files) you would charge:
10 hours x $100 / hour = $1000 PLUS $100 COGS = $1100 for your product / service
If you want to determine what your hourly billing rate should be . . .
. . . decide how many hours you think you will work in a year, and divide that by your yearly revenue goal. This is a great place to start, especially for heavy service based businesses.
Pricing For Your Sales Goals:
If your goal is a $2000 sale but your most expensive product is $20 you are going to have a difficult time reaching that goal. Be sure you have a variety of products that will make it easy for a customer to reach that sales goal. You can do this by bundling several products or services into a collection.
Just be sure your collections are built so that your COGS is still where you need it to be. If you overload your collections or underprice them, a $2000 sale won’t mean much.
Step 7 | Income taxes, ugh.
I left this part out intentionally because everyone is in a different circumstance.
If you file a pretty simple tax return you would need to simply multiply your gross annual income by your tax bracket to figure out your income tax before calculating your net income.
If your tax return is complicated like ours (multiple businesses, dividends, bonuses, etc.) you need to talk to an accountant to make sure you are on the right track with your numbers.
Know your costs girl! You have got to do some heavy research, soul searching, goal setting and calculating to get your pricing set. You can do this!
Take the time to invest in this so you aren’t a burnt out and frazzled mama.
Know your worth and charge for it! You (and your family) are worth it!!!
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