Note: A version of this article originally appeared here at BizJournals.com where I am a contributor.
I remember it like it was yesterday. It was 2002 and I was having dinner with my parents and new chief financial officer husband, regaling them with stories of my latest A-list celebrity clients and all the super cool events I was planning – the press, the parties – what a life I was leading! (At least in my own head.)
It was time to face the truth
My dad, bottom-line business guy that he is, acknowledged that it all sounded fabulous, but by this point he had had enough of the fluff (and was fueled by a glass and a half of wine). So he asked me point blank: “…But are you making any money?”
I couldn’t ignore the truth any longer. My life looked fabulous on the outside, but inside (of my brain and my business) I was clueless, despite having gotten my undergraduate business degree from one of the top schools in the country.
And at that moment I was done. Determined to rewrite my own story.
Starting from scratch
It was big-girl underpants time and I had to move fast. But with a very bad case of ADHD, I knew that I needed a system that was my own: Based in sound business strategy but simple enough for me to grasp, practice regularly and communicate to my team. I started with some basic analysis and the A, B, C’s. Here’s the net/net of what I came up with that literally, turned my life around.
How To Get Paid What You're Worth & Make A Profit:
1. List your “A’s” – Costs.
More specifically, list your direct costs or “costs of goods sold” (COGS). Whether you produce handbags or run a service based business, we all have COGS and we rarely have a true grasp of all of them.
2. Track your “B’s” – Time.
Just as you do when you are on a diet, you’ve got to write it all down – everywhere you’re spending your time so you can know what’s making you fat (and not in the profit category). Based on my own preliminary analysis, I was making less than $5 an hour. I call it my “McDonald’s Moment” because I would’ve been alot better off at the Golden Arches than as my own boss.
3. Tally the “C’s” — Hidden Expenses.
These are the “forget-me-nots” of your expenses, and they include items such as parking, shipping, mileage and project-related client and staff meals.
4. Group all of your Costs.
Then, reevaluate your gross profit margins armed with the new intel. A simple way to calculate your gross profit margins tallies the first three steps above and subtracts them from total revenue. It looks like this: Revenue – Expenses (A’s: COGS + B’s: Time + C’s: Hidden Expenses = Gross Profit
5. Reassess your overhead.
Once you do that, you can incorporate that figure into your new pricing model. The good news? Overhead, which includes all of your fixed expenses like rent, utilities, insurance, telephone, Internet, etc., should now be a lot lower. The bad news? A lot of it has shifted to your COGS and your gross profit margins aren’t so hot after all.
6. Set your new pricing, confidently.
How? You now know how much it truly costs, soaking wet, to produce your product or provide your service complete with all of those lattes and drive time.
7. Make changes and make money.
Course correct – evaluate your progress and keep tweaking your pricing as you get more data to test your new numbers. It’s quite easy, but no one does it. We’re so excited that we’ve done all of the heavy lifting of crunching the numbers that we forget that a critical evaluation and change process is crucial to long-term success.
It's 100% up to you!
It is not always easy having to go back to square one and rebuild when you are an entrepreneur. You are the only one who can do it. But when it comes down to it, you have to ask yourself why you are going to work everyday? It's great if you love your job, it's great if you love your coworkers or employees, it's really great if you love your customers. What is NOT great is working for free or for less than what you are worth. Don't cut yourself short–get paid for your hard work! You can do it!
What Tips On Getting Paid What You're Worth Would You Contribute?
Tell us in the comments below!