Increasing the prices of the services in a sole proprietorship or a small limited company is difficult. See the traps to avoid.
Do you sell services in your company? If so, what your selling is, in practice, your time, even if you take one price per commission or package deal.
The transition from being an employee to selling your own services can be difficult. You simply have to change your mindset.
It is initially always about negotiating prices when it comes to reaching an agreement with a client about the price. Here are two deciding factors:
- Your ability to negotiate the price and stand for the price level you have chosen.
- How strongly the market is demanding your service.
Avoid this mistake – the six reasons
When calculating what your working time and efforts should cost, do not take your stand on the level of wage income. Here are some of the reasons to increase the prices of the company’s services:
- does the work at its own cost and risk, with its own fixed assets,
- has to cover all social fees itself,
- has to (in the main) cover all insurances itself,
- gets most of the administrative work by itself,
- has to cover your fees for the business itself.
The sixth point is that your client is not required to have you in their income system, which would involve prepayment deductions, employer’s fees and employer responsibility.
This saves the client of both working time and pure money.
Reminding you that price-fixing is illegal (link to Norwegian Competition Authority).
Estimate a higher price in the livelihood company
To estimate the correct price, you can set up a calculus. Simply put, it can look like this:
Direct costs (that have a connection with the delivery)
+ indirect costs (ex: electricity, rent, accounting etc. that accrues no matter what)
+ profit (what you will live off of, potentially with a proportion that you put away to build capital)
= sales price
Most people who run a sole proprietorship are running so-called livelihood companies. So do very many limited companies. This means that they are not typical growth companies, with a goal of growing and getting many employees.
Four typical misjudgments
Here are four typical misjudgments that I constantly observe with livelihood companies in the start-up phase:
- You don’t think enough through what price level you want to be on.
- You price yourself lower than what the market is willing to pay.
- You don’t practice in the mirror enough saying the price without bashfulness.
- You’re budgeting with costs that are too low.
Do not excuse yourself when increasing a price
Once you have found your price you know what to take your stand in when negotiating with your client. You then know what it takes in the form of costs to get your business running smoothly. These are examples of what costs money:
- Office props
- Rent (if you rent an office)
- Travel and diet
- Sick children
- Potential sick days for yourself
- Accounting etc.
NB! Do not pull out this list to your client! You have, based on your calculus, found your price, which is what makes the base for your negotiation of a best possible price for what you deliver.