For new entrepreneurs, sometimes it can be difficult setting rates for your services. Especially when trying to understand how to bring together your dreams and desires while still making the math work; you have the dream, but where does that break down into cold, hard cash? Here are 5 pitfalls that I see happen time and again with new entrepreneurs.
Mistakes New Entrepreneurs Make When Setting Rates
They don’t begin with the end in mind. New entrepreneurs are often so worried about making a living that they don’t consider being selective with their hours or clients. The set an hourly rate that forces them to reach their income goal through volumes of meetings and work! This is a perfect way to wear yourself out and begin to feel like you’re just punching a clock again.
They only use their gut to decide what they should be charging. Checking in with your internal body compass is a great way to assess if you’re on the right track, however, so many new entrepreneurs tell themselves “stories” about their money that sometimes this isn’t the most effective method—most new entrepreneurs get a knot in their stomach just from thinking about charging someone, so you have to get past that story before you can objectively look at pricing.
They are starting part-time and defer the decision. Somenew entrepreneurs tell themselves, “I’m transitioning from my existing job and doing this on the side, so I don’t need to start charging what
I WANT to charge immediately.” This just defers the inevitable AND causes you to work at the job you want to leave for that much longer! Or makes it hard if you get laid off!
They don’t use the right math to figure out how to maintain their existing lifestyle. Most new entrepreneurs use their salary from their last job to determine what they need to maintain their life, but being an employee and being a self-employed business owner are so different financially that they lose time and money because of miscalculated assumptions.
They under value the experience they have. Many new entrepreneurs are paralyzed by the thought that part of their rate is a reflection of experience and mistakenly think “small” when setting their rate. What new entrepreneurs need to realize is experience is subjective, and the actual game changer is the level of confidence they have in their direction and ability to provide great service! Each one of us was put here to offer something unique to others.
One of the reasons a person decides to become self employed is improving their bottom line, yet sometimes the thinking that caused them to originally be frustrated with their finances will also bring those same issues into their new business. When new entrepreneurs only look at what they are comfortable charging, and they don’t figure out what they should be charging, there’s bound to be setbacks. Avoiding these pitfalls will ensure that the new entrepreneurs do not waste time or money when launching their new ventures!
Actions This Week
- Does the math work? If you just looked at your average number of customers and the average amount they spend with you over 12 months, does that make your dreams come true? Most people over estimate the number of people they will serve when getting started.
- Back into your rate. Try adding all of your desired expenses, including savings, vacations, lifestyle upgrades in addition to your required monthly expenses, and then see what you need to charge to get there. It’s usually much more than you have been charging.
- Consider raising your rate! I have to arm-wrestle most people to get them to raise their rates, even if they haven’t done it in 5 years! Personally, I have noticed that every time I raise my rate, I start providing even more value than I was before. Don’t be afraid to up your game!
P.S. You should look at my free workbook, Profit Clarity, which helps entrepreneurs with exactly these sorts of issues! You can download that here.