The Ditching Hourly Guy • I help solo consultants make more and work less w/o hiring • Get pricing tips by subscribing to my mailing list (see featured section for a link)
Most freelancers and solo consultants I meet don't have a good intuitive understanding of business profits. 👇 They confuse their pay (i.e., as the sole EMPLOYEE of their business) with their profits (i.e., as the sole OWNER of the business). Why? **Because they always forget that their pay is an expense.** Think of it like this: If you landed a project with a new client and then paid someone who was just as good as you to do the project while you did nothing, how much money would you have left over? My guess is very little. Let's use some made-up numbers to make this a little more concrete: 💲 Price that the client agreed to: $100k 💲 Cost to hire someone just as good as you to do the project on your behalf: $90k 💲 Profit left over for you as the business owner: $10k With all this in mind, let's return to the idea of agreeing to a discount... If you discount your price, the _discounted amount comes straight out of your profits_ but does NOT decrease your costs. So, in the $100k project scenario above, giving the client a 10% discount COMPLETELY ERASES YOUR PROFIT! And guess what? A business with 0% profit is not a fun business to run. ---- 🚫 Don’t let an algorithm decide what you read! Join 10k+ readers who get my daily email tips ⬆️ Click "Visit my website" under my name to subscribe ♻️ Please repost if this was useful
Ryan Anthony
4mo
A couple things here that stand out - Yes, we need to bill ourselves out as an expense as well - so that profit can be made for the company, rather than take-home for the owner (it's your cash though - do what you want). And the idea of discounting is something a lot of us can play with. The word does minimize the value and worth of what it is you're selling - but you can look at an alternative price or long term partner price - which is still the same thing. You create the margin, lol, remember that and utilize it accordingly.
David Wippel
4mo
A Cashflow management system like "Profit first" can help to shift the mindset. It helped me to think about my profit first (phun intended) and revealed how small my margin was back then.
Lars Engstrom
4mo
It can help solo consultants if they operate more like agencies. A good agency should try to make the sales process as similar as possible between all clients to be able to scale without unnecessary complexities. Adding different discounts and conditions to each deal is a recipe for huge headaches as your client roster grows.
As dumb as it sounds, a spreadsheet is really helpful with this!
You left out painful fixed and variable costs... The 90k was for the 🧠 🤯 brain Then there are the electric, medical, computer upgrades, print jobs, adverts....ON AND ON #SIGH
Kevin Riedl
4mo
Know your value.
Alejo P.
4mo
You know, I've never thought it that way before. I guess it's because I don't sub hire that often. But I'll apply it by thinking "I'm paying another person to do the job. That person is called Alejo." Thanks for that!
I love the theory but the minimum acceptable profit in a business should be 20% - yeah after paying yourself.
Steven Waddell
4mo
Good advice!
Data Analytics CEO | Turn Your Data into Decisions
4moSomething that's working for me is ROI based pricing. Does success of this project increase your revenue by 10% YoY? Great... The price to implement this project is only 2% of that added revenue. Would you spend $200,000 to return $800,000 in a year from now? Yes. Yes you would. Suddenly the price tag doesn't look so expensive. PS: Add in milestone pricing to remove risk from upfront costs.