Pricing Your Job for Profits and Boost Your Cash Flow: an Interview with Denise O’Berry
This interview originally aired as a podcast episode. If you would prefer to listen, you can find it here.
Cindy: I'm very excited to interview you since you've written and published a book about small business cash flow and you're an expert on this. And I feel that one of the biggest obstacles I've seen with stagers building their businesses is that they don't understand how money works. Before we can start talking about cashflow, can we talk about how money works in a small business?
Denise: Sure. So you know, money is coming in and out of your business all the time. It's gotta be flowing back and forth in order for you to have a viable business. And what's the problem for most small business owners as far as how money works in their business is that as soon as they start thinking about money, they start thinking about accounting. And then when they start thinking about accounting, they start thinking about math and it shuts most people down.
That's what's really exciting about cashflow because cashflow is not about math. Cashflow is about the story of your business and the health of your business. Your cashflow tells when things are working well in your business and when things aren't working so well in your business. So it's really a mindset shift, but that's one of the reasons why so many small business owners struggle with how money works in their business because they automatically start thinking math and then they go, “Oh, I just don't want to go there.” So hopefully we can shift a few of those ideas during our conversation today.
Cindy: I think that's really interesting. You phrase it as a mindset and I think that's actually really important. You brought up a really good point in that when people think about math or accounting, they just automatically shut down. Especially I think because we are in a creative businesses and most creatives don't like to deal with money, don't like to deal with logistics. And so when they hear stuff like that, they do shut down and they have this fear around learning about their finances.
Denise: Oh, absolutely. And the thing that's so amazing about it is if you don't pay at least some attention to the money in your business, you're not going to be in business. Because number one, you gotta have money to live. I mean, that's the way our society is. So you know, if we made our living by collecting chickens, then we pay attention to the chickens. But that's not how we do it. We make our living by having money. And so if your business isn't bringing in the appropriate amount of money to support the business, then you can't have a viable business. It just doesn't work. Ask any business that's failed and they'll tell you that cashflow was the reason.
Cindy: So what exactly is cashflow?
Denise: It's really pretty simple. There's three things that have to do with cashflow. You've got your income, which is the money that's coming into your business. Now, some people call that revenue. Revenue and income are basically interchangeable terms.
And then you've got your expenses — the things that cost you to run your business. So for example, for most people these days that would be a website, any kind of tools that they use to run their business, those types of things would be considered expenses. And if your business is paying you, which it should be paying you, then your paycheck is an expense of your business.
And then the last thing we have is profit. And that's one of the most important things you have. You know, when you have profit in your business, it's income minus expenses equals whatever's leftover and that's your profit. Now your profit can be used to pay yourself or it can be used to reinvest in your business.
So you've got income, expenses and profit. Those are the three components of cashflow for your business. And that's when people's eyes normally glaze over when you start talking like that.
Cindy: So is there a way to talk about it and not to make people's eyes glaze over?
Denise: Well, yes and no. So, income. Think about the people that love you and want to pay you money. You could think about it in those terms. The people that love the way you do things, they love the way you talk. They love the way you act. They love your personality and they love you so much that they want to shower you with riches. So you could think of income that way.
And then for your expenses you can think about it like, I have to dress a certain way or look a certain way or have certain things in order for these people that love me so much. So that could be another way to look at it.
I know you probably have an international audience, but in the US most people are raised not to talk about money. So when you have people that go into business for themselves and they've been conditioned not to talk about money and makes it even harder for them, because you have to be able to talk about money. If you're in business, you have to tell people what they're prices are. You have to be able to negotiate goods and services for your business. You have to pay people money, a regular part of the conversation. So if you have issues with money, with asking for money or with getting good value for the money that you spend, it's going to be a real challenge for anyone that has those kinds of issues.
Cindy: How do you know if you have a healthy cash flow or not? Are there specific numbers or you're looking for or specific trouble areas that might raise a red flag?
Denise: What your number is is a personal thing and it depends on why you have the business that you have. That's what's really cool about being in business for ourselves is we can strive to be the multi-millionaire and have tons and tons of money coming in our business. Or we can strive to have a smaller, more personal business where we bring in enough money that we can live a comfortable lifestyle and do the things that we want to do. So it really depends on what you want your business to do for you.
Everybody is talking freedom businesses and having the life that we love. That's the whole idea behind it. So you have to figure out what that means to you. How much money do I need coming in in order for me to have the dream that I want to have? Sit down and figure out those numbers, how much you need to live, what are the things that you want to be able to do? What do you want the business to provide for you? And then set some targets there and then that's your end goal. And then what you have to do is decide what your prices are going to be, how much of these things am I going to have to do in order to achieve that end goal?
Cindy: How do you figure out the best pricing to charge our clients?
Denise: Well, the best pricing will vary from business to business because pricing is tied directly to target market. You need to decide, are you going to be the Walmart? Are you going to be the Saks Fifth Avenue? Or are you going to be somewhere in between? Because every single one of those spaces has a tolerance for a certain price level. So if you tie it back to whatever your end goal's going to be and whoever you're most comfortable working around and for, that's where you can establish your pricing.
Now you need to do some research. You'll need to talk to who your target market market is and identify what their price threshold is and what they can tolerate. It wouldn't hurt to survey the landscape of service providers that serve the same market you're planning to serve and see what their rates are. But I want to add a little caution there too, just because the people that you're in competition with are charging a certain price, that doesn't mean you have to charge that price. You need to charge the price that your target market will bear. So you could use it as input when setting your prices. But your prices are personal too, because even though you might offer a similar service to someone else, there's only one you. So everybody brings their own personal thing to their business.
Cindy: Is there any good time when it comes to raising your price and also how do you tell your client that you're raising your price?
Denise:That's a really hard one for a lot of people, I would say. You can range prices at anytime. You need to raise your prices when you're too busy. That means that your prices are too low if you're too busy. So you need to raise your prices when you're too busy. That's really one key factor. Another is what if your expenses have increased from your business, but your income hasn't increased. That would be a good time to raise your prices. Maybe you've got to have some specific software or some specific product in order to service your clients properly and that's at an added an expense items your business. That would be a good time to raise your prices too. But it's one of those things that you need to look at at least annually. And if you've got existing clients, then you just need to tell them that you're raising your prices as of such and such a date. No apologies.
Cindy: How do you deal with clients who want to bargain your price every time?
Denise: Well, number one, if people are price shopping, they're not your target market, in my opinion. You just have to put your stake in the ground and say you don't do that. You know, easier said than done. If you're starving for money, it's really hard to do, but you just have to put your stake in the ground because if you consistently allow people to price shop you, you are going to be consistently quite shocked. If somebody tries to price shop you, then you need to turn the discussion around value. And if somebody wants you to do a bargain or make a change, just like I said earlier, don't make a change to your price without taking away part of the service. Never ever.
What an important conversation about pricing our services! Did you learn anything new? Let me know in the comments!
Small Business Expert Denise O’Berry is the author of “Small Business Cash Flow: Strategies for Making Your Business a Financial Success” a book about how to get, manage and keep your cash flow on an even keel and where it belongs — in your business. A small business owner since 1996, Denise has worked with hundreds of small business owners over the years and is inspired by their enthusiasm and ability to overcome huge obstacles.
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