So you’ve established your target billable hours and billable rate. You wisely are pricing all your work “by-the-job” NOT “by-the-hour.” Your newfound motivation is opening doors and opportunities to bid on jobs are starting to come in. You calculate the estimated billable hours. You apply your “profitable” billable rate and get excited knowing that now you will be making money. With a smile, you present the estimate to your excited prospect and the first words out of his mouth are…”That much?!”
Your heart sinks, panic begins to set in. What have you done! – your lizard brain screams. Before getting defensive, argumentative, or antagonistic BREATH (and keep smiling). Zig Ziglar once wrote:
When the prospect says, “too high,” or “not interested,” he is merely saying or implying that he is not going to give you his “big” stack of money for your “little” stack of benefits. In those cases…become a little “hard of hearing.”
Think steps. Walk your way through this.
- Remain optimistic and positive. You wouldn’t be there if your prospect customer hadn’t needed what you had to offer.
- Ask what your prospect’s expectations were. If he doesn’t want to talk about that, ask if he would take it for free. Of course, you aren’t going to give it to him for free, but you are getting the prospect to admit that, in truth, he does want what you are offering. This gets you and the prospect back to price.
- Focus on the difference not the original amount. For example, if your estimate is for $1000 and your prospect informs you that he had hoped to pay no more than $600 – you have a $400 sale to make. In reality, you’ve already made a $600 sale, you simply must now make an additional $400 sale. This will make it easier on you.
- Break that amount down. The smaller the amounts – per day, per hour, per piece, etc – the more affordable and desireable the decision to buy becomes.
- Emphasize the difference between price and cost. Is the price difference so great that the prospect is willing to forego the cost savings making the “buy decision” will provide?
- Benefits, Benefits, Benefits. Refer to what you know about your prospect. Having done your homework upfront, you know what benefits are most important to your prospect. Reemphasize those benefits and expand on them as much as possible.
- Create the vision – be an artist. Your prospect might not really know what he wants because he can’t see how all the benefits are not options but completely necessary. Paint a vision for your prospect of what all those benefits will do for him and his bottom-line. Open up new horizons for the prospect – exceed his expectations.
Using these steps will help you to get to the YES you desire and the price you need to grow your business.
Here’s a little secret I recently stumbled upon – getting your hourly rate and needed billable hours right really matters. So the question is – How much should I charge?
Our company, a service/material handling industry biz, has been around for over 25 years. We’ve had some highly profitable years and then others where we’ve been in the red. It’s maddening.
I was desparate to find out why. Why weren’t we profitable EVERY year? We would often point to things like the economic environment within the industry, competitors drastically cutting their prices, etc. If you’re in a service-oriented industry you know the list.
But as I got into the numbers of our business via the income statement, balance sheet, and statement of cash flow a different picture appeared. In a nutshell our problem was two-fold, we were losing billable hours and had no idea how many billable hours we need to be profitable at the hourly rate we were charging.
We do good work, period. People seek us out. It’s a wonderful position to be in.
The Upside - we haven’t had to focus much effort on sales and marketing.
The Downside - we really suffer when business gets slow for our repeat customers.
We are familiar with budgets, however budgeting time (i.e. billable hours) is not something we’ve done. I know, that’s crazy.
This is even crazier – we’ve had a great year. It wasn’t a lack of work that caused us to question how many billable hours we needed or how much we should be charging per billable hour. It was something that I’ll touch on in another post – personal improvement. Part of that improvement process is planned reading time each and every day. I was curious about how other service industry professionals priced their services and I stumbled upon a simple, common sense, mind blowing book:
Don’t let the cover fool you. This book will change the way you price your services.
Here’s how you price your services in a nut shell:
- Determine your indirect costs (overhead/expenses)
- Determine your direct costs (billable labor, materials, payroll taxes tied to the billable labor, etc.) based on your projected number of billable hours and material needs or, if you want to breakdown your previous year take your estimated number of billable hours for projects you completed.
- Now for some math (addition and division): indirect costs plus direct costs divided by the number of billable hours equals break-even hourly rate (IC + DC/# of Billable Hours = Break-even Hourly Rate). Here’s an example: You budget indirect costs to be $95K, direct costs to equal $40K, you believe that you will have 2,000 billable hours next year => $95K + $40K/2000 = $67.50 per billable hour. This would be your BREAK-EVEN hourly rate. Break-even means no profit (however, that doesn’t mean you don’t get paid – as an owner or salaried employee your pay is in the indirect costs, or should be, and any hourly or project incentives should be in the direct costs).
- But we all want to be profitable, right? So, we divide the “break-even” billable hour rate by the reciprocal of the percentage we hope to achieve (ex. if you want a 25% profit margin, the reciprocal is 75% or .75). So, using our pretend numbers above – $67.50 (break-even hourly rate)/.75 = $90 per billable hour
- Now plug it in – $90 per billable hour X 2,000 projected billable hours = $180K in projected revenue
- $180K (projected revenue) – $135K (direct costs + indirect costs) = $45K (net income). Your net income will be subject to taxation, but achieving these kind of numbers is what allows a business to grow.
The really cool thing – you know how many billable hours you need to achieve profitability. Now that you have a written, numeric target you will be much more motivated.
Now that you’ve answered the question – How much should I charge? – you can do as Seth Godin says “Go. Make Something Happen.”