Pricing is something that most business owners struggle with, no matter how experienced they are. Heck, I’ve even gone on camera telling people to just use their gut feeling when setting your prices. Scratch that – it’s the worst thing I’ve ever said on video! You should absolutely NOT set your prices from your gut feeling….
Pricing is a touchy subject, because it can bring up a lot of mixed emotions for people. Do you ever find yourself asking questions like:
- Do my prices make me look arrogant?
- Will anybody be able to afford my services?
- Who am I to think I’m worth so much money?
- How do I know if I’m pricing my services correctly?
- Should I charge less than my competitors?
Let’s take emotion out of it for a moment. Confidence is a topic for another time, but for the moment, pricing is about rational thinking. Here’s the secret: it all comes down to your control number.
I can hear you asking, “WTF is that?”
Your control number is the amount of money you need to bring in per month, to cover your business costs and tax and still be left with a comfortable amount of money to live off.
Not a crazy ‘dream’ amount of money including a luxury Caribbean vacation every month – that’s a topic for a different time. For now, we want to focus on the amount of money you NEED to bring in to live a comfortable life.
There are three steps to working out your control number.
First, you need to outline all of the costs you currently have in your business.
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For me, for example, that will be my systems, the software I use, my ConvertKit account, because that's what I use for my email service, my Canva account, because that's what I use for my graphics…
For you, your business costs might be your office, your insurance, or your accountant.. Make a list of all of those costs, and summarize them on a monthly basis. Let’s say you have an accountant that costs you 300 euros every three months. In that case, you’d need to write down 100 euros that we're going to count for that accountant for the month.
Once you’ve got those written down, we move onto the second part of your costs: your lifestyle costs.
We’re talking about your living expenses for a normal period for you. Not per se crazy vacations and shopping trips, but what you can think of as a breakeven lifestyle. Having enough money for groceries and buying necessary birthday gifts, along with rent, gas, car payments – those kinds of things.
Now you know how much your current lifestyle costs, this is where tax comes in.
I want you to look at how much tax you need to pay. It’s a good idea to work on the basis of having to pay 50% tax, because in Belgium that’s the worst-case scenario.
This can sound kind of complicated, so let’s work through it with an example. Imagine that your business has 2000 euros of expenses. That’s the costs that you worked out in the first step.
The second step was to work out how much you want and need for yourself – let’s imagine that’s 1000 euros. Because we’re working with a tax rate of 50%, to be left with 1000 euros for yourself, you need to earn 2000 euros to cover your lifestyle costs.
The final step is adding together those two amounts to earn your control number.
In this scenario, your control number would be 4000 euros.
This number allows you to figure out your pricing in a logical and strategic way, leaving you with the knowledge that you can cover your costs at the end of the month. It sounds complicated at the start, but it’s really fine when you break it down.
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