4 Tips to Avoid the Cash Drain of Emotional Pricing
Financing 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:
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
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.
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."