5 Financial Mistakes New Business Owners Make (and how to avoid them!)
1. Not charging enough for your services: When you start a new service business from scratch, it’s hard to know what to charge. You may have guidelines based on others in your area of business which helps. In reality, you’re likely to take what comes your way to get started. Many entrepreneurs I know offer their services for free to get the experience and testimonials. Others use industry guidelines. How do you know what the right price is?
A few years ago, I took a course at Harvard Business School. The professor had been one of the creators of what later became American Express’ Concierge Service. When she and her partner started their business, this is the pricing method they used: When someone called asking for a particular service such as having their dog walked, they offered a price they deemed reasonable. If the prospect signed up, they increased the price to the next prospect. They continued this process until the prospect balked at the price. That was when they knew it was too expensive. While not very scientific, for some low-cost services, it is a viable methodology.
Another option is to take the average salary of someone who is working for a company in your area of expertise and figure out what that hourly rate is.
Assuming your first clients are likely to be or come from people you know. You could ask them what they would pay for the service you’re offering. If they say that they wouldn’t pay anything, it’s a good indication that you’re barking up the wrong tree.
Be wary of offering too much for free for an extended period of time. If you wait too long, your customers will expect more for less and you’ll have trouble raising your prices later.
2. Allowing clients to haggle over price: You started a business, invested time and energy and came up with a price that offers good value to your customers. There’s an interested party who has spent hours vetting you. Now you send them a contract and they start to negotiate the price. Feeling like you’ve invested so much time already, you give in and offer them a discount. Cardinal mistake! That client will never pay full price and odds are they will be the most demanding client.
3. Not taking a deposit: If someone is truly committed to your service, they should be willing to pay a deposit. Unless they have a track record that indicates they will definitely pay you in the future, don’t start the work until you have the deposit. If you do, you may find yourself out of luck when the work is completed.
4. Not having a clear scope of work defined with a particular outcome: I worked with a company last year that promised me a solution to my problem. The company kept missing the mark. Their work was shoddy and they were elusive when I tried to discuss my concerns.
At some point, they pointed out how many hours they had spent on the project and that the contract was up. Nowhere in the contract was the number of hours indicated. Their contract only mentioned the outcome. Needless to say, I never got the work and they returned a portion of my deposit. I imagine their next contract was much clearer.
5. Being too nice. I get it, you want to please your client. You want them to like you and to tell the world how great you are. They’re incredibly demanding and they never pay on time. You feel guilty about asking them for money yet you’re getting more and more frustrated. Get over it! You’re a businesswoman. While you may be a very nice businesswoman, you don’t work for free and you have to pay your own bills.
Ask your client what they charge for their product and if they would give it away for free. Think about all the services you readily pay for, would those professionals give away their services?
No matter what business you are in if you provide what your client needs, you deserve to be paid properly for your work. Don’t be afraid to ask for it, you're worth it!