Why is Pricing So Damn Hard?

Would you prefer to listen to this post Instead?
Listen below!

One of the gnarliest questions I see clients and friends and fellow service providers wrestling with is, “What should I charge for this?”

And of course! Pricing is a critical component of any business. There are so many factors to consider, of which only a few are:

Is this enough to cover my expenses and also pay myself?
Is this a reasonable price point where I believe enough people will purchase in order for me to break even?
If I so choose, how can I make this more accessible to more people with different budgets and backgrounds?

The harsh reality is that we are still living within late capitalism, and for the foreseeable future we will need to find a way to exchange enough energy/labor for cash that allows us to pay for necessities like rent, food, transportation, internet access, etc. Many of the clients I work with (myself included) are so passionate about what they do that they would do it for free… if it were only possible to still keep a roof over their heads while doing so. So we find ourselves at this crossroads of needing to make a certain amount of money in order to live the life we want, while also wanting to do so in a way that is more values-aligned and is not purely exploitative as we have seen from so many entrepreneurs and businesses before us.

Another layer that can make pricing such a mindfuck for service-based entrepreneurs is that the line between who you are and what you sell can become quite blurry. Especially if you are a coach or consultant, which means you’re offering intangibles such as your questions, ideas, observations, and wisdom with your client. What you are “selling” is your experience and the way you think and your ability to recall patterns and connections from all of your past experiences and trainings. They are thought-forms that are transmitted via your words in the fleeting moments of your 60-minute client session.

That being said, I’ve noticed a few things that consistently challenge me when I’m pricing an offering, and I also find these issues are quite universal for entrepreneurs. If anything, know you’re definitely not alone when you brush up against these.

The myth of “charging what you’re worth.”

There are offshoots of this cliched phrase, such as “Charge what your work is worth,” and “Know your worth and then charge double.”

If any of those help you in feeling more emboldened to charge more, then, by all means, follow that feeling and use those words as your inspiration!

But I’m not a fan of this sentiment, because I don’t believe you can ever charge what you are worth. You are priceless. Your existence, your being, your life is invaluable.

But I understand the sentiment. I’ve seen it time and time again where many of my clients are undervaluing themselves and/or their work. A lot of the high-conscious entrepreneurs I work with want to operate from an anti-capitalist lens, so finding a price point that not only feels accessible to more people but that can also sustain their needs, is a proper dance.

What does the phrase “charge what you’re worth” bring up for you? Does it feel empowering or disparaging? In what ways do you tie your worth to money? How might you want to shift that relationship?

Our money stories and how they impact what we charge.

For the first couple of years of my business, I held tightly to an unconscious belief that everyone’s financial situation was just like mine. I struggled mightily with charging more for my work because I was attempting to price offerings at what I could realistically afford. I share this with so much compassion for Past Maggie, but there was a block to what I would allow myself to charge. If I didn’t feel like I could afford it myself, it was too expensive.

I had to do a lot of work to release the idea that everyone’s financial situation was just like mine. I came to terms with the fact that just like every other aspect is beautifully unique, so it is with our finances, too.

And just because I might not be able to afford my own services, that does not mean that I am somehow unworthy of receiving fair compensation for (what I believe) to be an equitable exchange for high-quality work.

We all have money stories, and these can sneak through in ways we might not even recognize until we take the time to examine them.

What money stories are you holding onto that are impacting how you price your work?

Psychology of pricing

Humans have a very interesting way of perceiving value, and it can be really helpful to have an idea of how this perception works.

I like this helpful article from Shopify because it explains the basics of the psychology of pricing and how businesses have used (and still use!) this method to persuade (erhm… manipulate?) us customers. Whether or not you want to experiment with any of these ideas, it’s helpful to know this information. (If not for being a responsible business owner, at least to be a more discerning consumer.)

So with your awareness of these factors that can impact your approach to pricing…how do you actually come up with a number to put on the sales page or in your proposal?

I find a blend of the typically recommended calculations with some intuitive tweaking to be the most helpful.

First, you need to calculate how much you need to make.

Most service providers I know (even though it isn’t an exact science) use a simple formula of hourly rate x estimated hours = amount they charge for a particular project.

Though there are issues with this as well. For more seasoned folx, it typically doesn’t take them as long as someone more green. So if the hourly rate is the same, the less experienced person might get paid more. This definitely requires adjustments over time to account for acquired skills, expertise, and speed! And all the more reason to regularly update your hourly rate so that it matches your present experience level.

Brass Tacks: How to calculate your hourly rate (so that you can actually pay yourself)

For entrepreneurs, simply starting with the typical salary you’d make doing similar work at a full-time job doesn’t cover it. This is because you have to factor in employer AND employee taxes, operating expenses, private health insurance, fully funding your own retirement, etc. And don’t forget all of the non-revenue-generating tasks like conducting intake calls, the time it takes to scope each project, any marketing activities (like writing this blog post!), bookkeeping, etc.

As a rough rule of thumb, I can expect to see about 50% of whatever I bring in for the business as owner’s pay. The other 50% goes to taxes, operating expenses, and to pay my team.

So if I (as the business owner) want to make $50,000 to live my life, then my business needs to bring in (aka my gross revenue needs to be) at least $100,000.

What you want to make each year x 2 = How much your business needs to make

Divide THAT number (how much your business needs to make) by the annual total number of hours you want to work, and that’s *loosely* what your hourly rate should be.

Some reminders to consider when thinking about when calcuating how many hours you want to work in a year:

Remember that the 40-hour work week is a fallacy and nobody is productive for a full 8 hours a day. As the business owner, you’ll need to consider time for other non-revenue-generating work.
Even though there are 52 weeks in a year, I sincerely hope you aren’t working all of those! Give yourself time for holidays and being sick. How many weeks are you realistically wanting to work?

Estimated hours: You have to start somewhere!

There will be some trial & error as you start, but track your data! Then you can make more educated estimations. When you are first getting started, it’s hard to know exactly how long something might take you. So do the best you can! And as soon as possible, start to track your time (I use Toggl) to help you have better information about how long things actually take. (FYI: For most of my clients, once they start this process they realize that they aren’t estimating enough time and that results in project fees that are less than they should be.)

So remember that basic formula we started with? Hourly rate x estimated hours = project fee. Now make a practice of adding 20% on top of that.

Why? Because something unexpected almost always comes up. This way when it does, and if the request is still within reason, I can honestly say yes and give without resentment because I’ve built in that buffer.

Not only that, but this also helps cover my tendency to underestimate how long things will take. (Yes, this can still happen even after tracking my time. Each new project brings new data!)

As you grow, you can incrementally increase your prices.

Increasing your pricing can bring up a lot of insecurities and self-doubt. As a way to honor this moment of growth and expansion of increasing your pricing without completely negating your nervous system, I like to encourage my clients to envision what it would feel like to gently nudge their pinky toe outside of their comfort zone. What does it look like to gently peer over that growth edge? Start there.

This can look like increasing your price with each new proposal.

Keep going until you’re consistently getting noes AND the reason potential clients give is because of price. That’s when you know you’re close to reaching the upper threshold of what you might be able to charge for that service at this time.

Get creative with your pricing structure and build in accessibility.

As service providers, our project fees can be on the higher side, and it makes sense with this done-for-you model that is so high-touch. Our business model is different from the content creator with an audience size of 20,000. Of course, they can charge $20 for a resource because even if only 2% of the total audience purchases, that’s still 400 people for a total gross revenue of $8,000!

But back to us service providers! Every offering doesn’t have to be high-ticket. You can absolutely diversify your offerings and offer downloadables or resources for a lower price point—although it might not be a substantial revenue-generating source for you, it may be one way to share your gifts with more people at a more affordable rate. You might also share a lot of free content on your social media channels, blog, or newsletter. But I would also encourage you to think about how to build in accessible pricing to your existing programs.

You could offer scholarships or sliding scale pricing. You might consider donating a percentage of sales to an organization or cause you believe in. After determining your profit margins, you will have a better understanding of what you can realistically give while still covering expenses and paying yourself well.

Phone a friend.

Pricing is so intertwined with perceived value that even after all of this, it can be helpful to turn to a few trusted friends to help you with a gut check. Whether or not you take their advice is completely up to you, but I do find this exercise to be illuminating when it comes to finding that sweet spot with pricing.

Describe the offering. Maybe even share a sales page (if you have it), then ask these three questions:

After reviewing this offering, what price point feels too LOW that you would question the quality?
After reviewing this offering, what price point feels too HIGH that you would no longer be able to consider it?
After reviewing the offering, what price point feels JUST RIGHT that you would have no hesitation purchasing it?

This is uncomfortable work, but this is part of the reality of running a business in a late-capitalist society. Get honest about your numbers, pay attention to any money stories that are popping up, and remember that you can never put a dollar sign on your worth.

If you want to take this further and explore more of the financial side of your business on your own, here are some of my favorite financial resources for creative entrepreneurs:

The Art of Money by Bari Tessler >> To dig into your money story and begin to heal your relationship with money.

Profit First by Mike Michalowicz >> A budgeting system that works for me and has seen my business through flush and lean times.
It’s Not Your Money by Tosha Silver >> When you feel like the flow of abundance has dried up, read this for practical steps to shift the energy.
You Need a Budget (YNAB) >> An online budgeting tool that I use for life and my business where I can “assign a job” to every dollar.
Bravely Go >> Informational videos, resources, and courses for personal life and your small business—all through a feminist financials lens.
Financials for Creatives >> Money coaching specifically geared towards creative, self-employed women.
Naked Balance >> Everything from programs to get your finances in order all the way to Virtual CFO services, this husband & wife duo are equal parts sincere & wise.
Amy Northard, CPA >> If you’re in the market for a new CPA, I cannot recommend Amy and her team enough! You’ll want to get on their waitlist now.

I know this is a lot! Pricing can be complex and involve so many different factors and variables, and it helps to be able to tinker with the numbers and try out different scenarios.

So… I created a workbook for you, complete with a Google Sheet template, to help you run the calculations with ease. The template comes with an explainer video from me so that you don’t have to feel quite so alone diving into a blank spreadsheet. You can do this! 💪