I’m Lauren, I started my first business while trapped in a cubicle and dreaming about a better life for myself and my clients. I spent my days fixing issues I knew I could have prevented... if I'd just gotten to work with the client earlier. So I started - on an ancient laptop with a clipart logo and within 18 months was the owner of a thriving practice.
What value you have placed on an hour of your time? How do you arrive at this number? Do you take a look around at what your competition is getting? Did you figure out your desired annual net income and work backwards to an hourly rate? How do you know if it’s enough? Did you calculate just enough to survive, or did you build a fee structure that incorporates future financial comfort without going overboard with glitzy crazy outrages prices? Here are a few reasons why you need to stop undercharging right now.
Undercharging makes people skeptical of your financial value or your motives
While most people love love love a low price, that affection does not come without skepticism. Why are their prices SO low? Am I getting what I pay for as in, I’m going to get a crummy product or service? Are they so desperate for my consumer dollar that they have to offer rock bottom prices just to get me in the door? Why aren’t they competitive. See? Skepticism. That’s bad bad bad for business. Undercharging is actually going to hurt you in the wallet because you’ll constantly be coming up short and have a tougher time meeting your financial goals.
You won’t make very much money, and you will grow resentful
If you are working a brick and mortar 9-5 and your boss piles task after task onto your desk, but keeps paying you that same hourly rate that he hired you on with 5 years ago, you’re going to get a little cranky don’t you think? Why would you do that to yourself? We know that it takes desire, passion, drive, spirit and soul to create and maintain a business. One of the quickest ways to snuff out the flame on that candle, is to undercharge and therefore underpay yourself. Why would you want to continue? There is absolutely no harm in being comfortable and confident with what you have to offer. There is no shame in being expensive, as long as you know your high price is justified! There are people out there who will pay exactly what you are charging without blinking an eye. Heck, some businesses even choose to market directly to those people.
The other kids won’t like you very much
There is some value in being friendly with your competition. You should feel that there is someone in your niche that you would feel comfortable referring your customers to if you cannot serve them. By undercharging, you are cutting those same friendly competitors off at the knees. When you charge $20 an hour for the very same service that they are charging $100 for , you are undervaluing their skill, craft, art, etc. What would you think if the tables were turned? It’s just bad for everyone’s business. Don’t be that “guy”.
Raising your rates later makes you look even worse
Let’s say you had a favorite coffee shop. You have a fussy coffee order, no one ever gets it right, and you always wind up a frustrated java enthusiast. Finally a new shop opens on your corner and you decide to give it a shot. You are blown away by the low prices, excellent customer service and fantastic cup of coffee. (The kind with the snazzy little designs in the foam on top) The next week when you stop by for another cup, their prices have jumped significantly, but you pay it because you love the darned coffee so much. The second time that the price hikes, you’re not going to be very happy, and you’re going to learn to live without that delicious fancy coffee and you’re going to leave with a sour taste in your mouth. This business has just lost your loyalty because you feel like they are gouging you, taking advantage of your patronage and your fondness for their product. Not fair, not cool, not easy to recover from. If this is you, in your business, if you take a look around, those friendly competitors we talked about earlier, they’re going to be ticked at you too, because now you’re making a bad name for everyone.
The best thing to do when you’re starting out and learning your pricing structure, is to do your due diligence, do your research, talk to the competitors, look at their rates sheet and see what they are charging, come up with a happy medium between that and what you need to make to live comfortably, pay yourself, cover your expenses, and continue to build your emergency or rainy day fund.