I’ve noticed an interesting pattern from the entrepreneurs and small business owners with whom I’ve worked, as well as with those who are friends and colleagues: They unwittingly keep their business stuck at a particular revenue threshold.
I have a theory as to the cause of this.
Several years ago, I presented at a conference for entrepreneurs. When I asked, “How many of you have only ever worked for yourselves?,” only two people raised their hands. There were approximately 200 people in attendance. This ratio (2 out of 200) didn’t surprise me one bit.
From my experience and observation, most people worked first for someone else before taking the leap to go out on their own. So, what I saw from the stage that afternoon in Portland, Oregon matched with the result I was expecting.
What inspired the people in that room (or anyone really) to take the leap and become an entrepreneur/small business owner is as varied as the number of people who choose to take it.
Sometimes, the inspiration or reason is due to a downsizing, a frustration with the “system” of their industry and a desire to do things differently (better, perhaps), or a change in their family’s needs.
Sometimes, their venture is an extension of the work they did as a FTE, or a hobby that became a viable business.
Sometimes, the transition from employee to business owner was financed with severance, the income of a mate, personal savings, or family wealth. Or, maybe a combination of these.
You Might Be Undercharging
My theory is this:
Let’s say you are working a full-time job and you have a side-hustle. Maybe your goal is to use the side-hustle income to supplement your FTE income – so you can more easily meet current expenses or finance future goals. But because you are not looking for this side-hustle income to contribute significantly to your business and personal income, it doesn’t have a lot of “pressure” attached to it.
A similar scenario can play out if you have a significant other whose income covers all your lifestyle expenses, or you have sizable savings or family wealth you can tap into.
What I’ve noticed is that there is a strong correlation between how you price and the degree to which you are reliant on the income from what you are selling. This “reliance” factor has a tendency to show up in your pricing…and it often looks like undercharging.
So, because you don’t “need” the money, you don’t really feel the financial and positional impact of charging, for example, $1,000 when the better price would be $2,500.
Something else has a similar impact.
It’s connected to the culture of work.
I often reference a study by Dr. Amy Wresniewski of the Yale School of Management. Here’s a breakdown of how she describes the difference between a job, career, and a calling. Basically, a:
- job is functional;
- career is a combination of functional with some ambition in the mix; and
- calling is when you tend to feel a deeper alignment – you find your work rewarding on multiple levels.
What I’ve experienced personally and noticed vis a vis my coaching clients, pricing masterclass participants, and friends and colleagues is that we fall into the latter category. Handling the “business” of the work we do may be frustrating at times, but the actual work is deeply rewarding – emotionally, creatively, and in terms of impact.
How did you start your business – as a hobby or as a side-hustle whilst working a full-time job? Did you start your business without it having the responsibility of needing to cover your lifestyle expenses – either because you have a significant other who could, a full-time job, or because of your personal savings or family’s wealth?
Do you view the work you do in your business as a “calling?”
Your answers matter since how you started and initially financed your business is influencing your approach to pricing – TODAY! Whether you realize it or not.
Avoid the Trap
I’ve yet to meet an entrepreneur or small business owner who started a business with the intent of stunting their long-term future or profitability and sustainability. I bet the same is true for you, too.
Your pricing does a lot of work; it has many jobs and plays a key role in your viability.
Your pricing sends signals to your clients, customers, and prospects. It also reflects the experience and intimacy you want them to have with you.
It sends a signal to your competitors regarding your position in your marketplace.
But the thing I believe people overlook is how your pricing is, ultimately, a decision-making process. Yes, it’s a process that establishes the value of your product or service. But guess what? Both your business and personal financial wellbeing are a part of this value equation, too.
Not taking into account how you started and initially financed your business or how you view your work can restrict your position and progress. It’s how you can fall into the trap of unwittingly keeping your business stuck at a particular revenue threshold.
p.s. There is still time to RSVP for the next Pricing Made HumanⓇ masterclass on Thursday, June 8th at 4pm EDT. Just click here to RSVP and save your spot. Would love to have you join us!
p.p.s. ICYMI: Here’s the link to the segment where Angela Yee, Stacey Tisdale, and I talk about founders depression, dating an entrepreneur, dealing with depression and more.