There are many reasons why people are caught in the trap of undercharging, but it’s usually not for the reasons we think. Often, it’s an internal battle that boils down to several critical behaviours:
- Lack of confidence
- No business model and plan in place
- No control over the numbers
We see this often – talented entrepreneurs with enormous potential – but they are over-worked and unprofitable. When a contracting client of ours launched their limited company in 2013, they admitted to feeling a sense of unease about accepting fees from bootstrapped startups. They were suffering from guilt, lack of confidence and had no control over their numbers.
You need to have a tight handle on how and where the money is coming in and going out. In this case, the client had been working on Excel spread sheets before. We set them up with Xero (online accounting software) so that they could identify financial drivers, the actual cost of doing business and see what they were truly earning.
By taking control of your finances and key business measures and metrics, you’re immediately empowered to understand the financial picture intimately so you can improve it.
Lack of Confidence
You are undercharging. Do you also:
- Work long hours (18+) each day)?
- Keep working without stop?
- Habitually go over your consultation time, giving more and more time for free?
The reason for this is that you probably underestimate the value you’re bringing, and you’re afraid that you’re not good enough or powerful enough to help the client in the allocated time.
The truth is that a failure to realise that your fees are too low also attracts problem clients – they second-guess you and do not value your experience and expertise.
Your fees reflect your value, expertise, know-how and your status in your industry. If you undercharge, you’re sending a clear message to prospective clients that you do not respect, value and honor your own experience and expertise.
No business model and plan in place
Another reason why contractors don’t charge correctly is that they have not taken the time or effort to measure, quantify or identify clearly the key outcomes that they offer. This information normally appears once you start developing your business plan. What will also surface during this vital exercise – are your drivers in your business. Contractors commonly mistake pricing as the most important driver in their business, and often neglect critical actions like marketing, events, networking, and referral partners.
Fear and Guilt
As mentioned before, lack of confidence also plays tricks with your mind, and you’ll start believing that your fees are too high and that this will scare off prospective clients. This is called FEAR: False Evidence Appearing Real.
Whether it’s from a fear that your work is not good enough, or that in some way you are unethically “taking” from others, left unchecked, fear and guilt can derail you from making money.
- Calculate roughly what you should be earning, then qualify it with your accountant
- Take some steps to power up your business plan to become stronger and more effective in what you do – this is a value added service your accountant can help you with. Square Mile Accounting has free resources (guides, videos, apps and tools) for clients to help you manage your financial picture.
- Overcome your personal stumbling blocks to become more confident, fearless and develop self-belief.
- Set tougher boundaries by saying “no”. Know and respect what your time is worth – and stick to the schedule. In your case, time is money!
- Charge more, starting now. You can transition your existing clients to higher fees after some planning, but new clients need to pay you more, starting today.
Now you have the ability and the power to increase your profits by understanding these critical behaviours – and then taking the steps above to remedy your situation. You’ll find yourself working less and making more money – and loving your work rather than drowning in it.
Book a complimentary 30 min chat with our chartered accountants to see how we can help you.
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