4 Tips to Avoid the Cash Drain of Emotional Pricing

Shopping Image for Pricing 2Financing and running a business can be very challenging. Pricing takes a money plan to break-even and to reach a higher level of profit. Most business owners find it difficult to charge if they have a passion for their business.

Individuals who have never learned to charge, say we should not charge a fee for services and products that we have a passion for performing or creating. However, these passions and gifts are given to use to help us earn a living and to serve others. If we do not earn a leaving, usually, we don’t have a way to pay for the cost of living.

My top 4 emotional pricing mistakes are:

Lack of Confidence in Pricing

A large number of small businesses close each year due not lack of cash flow and income. Having clients comes with a fee. There is a cost to order product for clients or the materials to produce a product. There is also a cost for services that we provide. When receivables or collections are slow or the fee is low, the business does not have enough money to cover the client or the business.

Emotional spending lowers the business owner’s income if we give away services because of lack of confidence in pricing. Business owners tend to give away products at a very low price due to a belief the consumer will not pay the price. Giving away services and products too often reduces your bottom line income. If a product is not moving off the shelf or services are not selling, perhaps marketing needs to be reviewed.

Testing products before mass purchases or production will also eliminate the chance of failed sales. Test and know your target audience to save money. Sometimes creating a product because we like the product will not benefit the business.

In the accounting and tax world, business owners create a spending budget for R&D (Research and Development). Testing and developing the product before stocking the shelves will give you an idea of the products for sale. You can also donate the value of the product for to charitable organizations or use the product for advertising giveaways later.

Emotional production usually leaves us with more product than we need and can be discouraging.

Here’s an IRS article about deductible R&D expenses: https://www.irs.gov/businesses/small-businesses-self-employed/current-year-deduction-of-research-development-expenditures

Not Charging Family Members or Friends
I believe in helping family however at some point we do have to charge for services. Family and friends know you need to make a living and should appreciate your services enough to pay full price.

I have seen situations where the family member would not pay the business owner but was willing to pay someone else for the same type of services. You have to know your value. Avoid the guilt trip from being related or friends, just because we are related or friends does not mean I do not have a business to run. Giving away services without return on investment will cause lack of cash flow for your business and a possible shut down.

Working for Free out of Guilt
 I believe we all can donate services and products when properly managed. Abundance is overflow for which we help others who need help or giving out of kindness and support. However, never charging enough will not allow us the opportunity to earn overflow to give to someone else.

Select certain individuals you can serve for free or low cost. A small group of clients will balance out the services that we donate, and we can still make a living. Example, perhaps you can give away services to 2-5 people. Once that limit is met for a certain period, we have, to charge the normal rates to support the business.

Charging a fair price for your value of services/products is different from purposely overcharging or taking advantage of people. We charge for value services and products. We reap what we sow and then we can support others. Work this into your money plan.

The bible has many instances about business owners and earning money. I will go into this more in my “Mastering Your Money Plan.”

Unsure of Pricing
 Most business owners have to invest personal money into their business, or they never have enough money to pay themselves, cover taxes, or reinvest back into the business with the income from sales, avoid repeat owner investment due to weak pricing. Many business owners have had to close due to lack of cash flow.
Track expenses, calculate pay to pay yourself and cover taxes and then have the confidence to increase pricing for a more profitable business.
Related Articles:
https://www.entrepreneur.com/article/249020

Accounting Firm handling Bookkeeping, Cash Management,  Profit Strategies, Payroll, and Tax Services based in Fuquay Varina, NC serving local areas and nationwide.

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Y. Michelle Coard, BA
President/Accountant/Profit Strategist
B&P Accounting Solutions, Corp.
Phone: 919-249-5156 ; Fax: 919-249-5156
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