Q: My coaching service is low-cost, so I need an endless supply of clients whom I can’t find time to secure. How can I get a handle on my numbers before I go bust?
A: Ignoring costs is a deadly trap for entrepreneurs. To have any shot at running a sustainable business, nail your numbers right now—then adjust fees accordingly.
As a service provider, “you are selling a product. That product is your brain, experience, knowledge and guidance,” says Dawn Brolin, a certified public accountant who works with small and midsized businesses.
It’s common—and incorrect—to assume that it’s “free” for you to offer advice. You have direct expenses associated with providing your expertise—utilities, website design and hosting, print materials, meals, memberships and the like, Brolin says. Write it all down, then ask what does everything you spend to provide your service—including the roof over your head if you work from home—cost per hour?
To determine hourly cost, Brolin suggests starting with the number of hours you work in a week, multiplying it by 52, then dividing by 12 months (for instance, 50 hours worked per week times 52 weeks divided by 12 months equals 216 hours worked per month). Take your total monthly costs and divide by the monthly hours worked. That’s your cost per hour.
If your cost is $30 an hour and you’re charging $30 for your service, that’s a hobby, not a business—so you must raise fees to survive.
Next, figure out the going rate for your service. Once you determine that cost, Brolin advises, decide on what you want your gross profit percentage to be. “If you determine that your direct costs are $50 to deliver a service, and you want to earn a 100 percent return, you would charge $100,” Brolin says.
Another smart option for higher earnings: Consider group rates or bulk pricing, says business coach Erika Lyremark of Daily Whip. For example, instead of coaching one on one, which is limited by the hours in a day, work with several clients at once and charge each a reduced price. They save money while you maximize your time.
For instance: Five hours of private coaching may have a fee of $500, whereas five hours of group coaching could be offered at $350 per client, and you can work with, say, 10 people simultaneously. You’ve grown your revenue from $500 to $3,500 with the same time investment.
“Look at your top three competitors who have been in business longer than you have and see what they charge for group coaching. Average what they are charging and charge that,” Lyremark suggests. “Challenge yourself to offer more value than your competitors—even if it takes more of your time—because the revenue and loyalty will justify it.”
Whether you sell a product or service, “be confident that your pricing is profitable,” says Pam Turkin, founder of Just Baked, which has 16 cupcake shops in the Detroit area. “You can cut certain margins close for some accounts that have potential to grow, but never sell at a loss.”