Think about the organizational chart for any company and you’ll see a wide variety of roles—accounting, marketing, sales, strategy, operations, and more.
When you’re a solo entrepreneur trying to turn a side hustle into a business, there’s just you. Solo hustlers can put a lot of pressure on themselves to excel in all of these areas, but the truth is it’s neither logical nor realistic. Your expertise is the purpose behind your business, and making the wrong decisions can have unfortunate consequences.
As part of our mission to make it easier to grow and manage a solo business, let’s talk about one of the most important decisions you need to make: what to charge for your services or products.
A lot of factors go into deciding what to charge:
- Hourly or flat fees
- Covering the costs of running your business
- Finding the sweet spot for potential customers
- Being competitive
Let’s help you get started.
Decide your metrics
A popular cable show about reinvigorating failing bars and restaurants often starts with an initial conversation with the owners about some basics—how much do you make, what are your costs, what are your most popular products. It’s startling how often these business owners cannot answer these questions.
Before you end up on a cable show being yelled at by a cranky British guy, you need to level set the data behind your business before you can make informed financial decisions. Start by documenting some basics:
- Sales Data
- Units sold—Units might be specific items, or blocks of time, or packages of services. The point is, you should be able to quickly identify how much “stuff” you’ve sold.
- Gross revenue—What did you earn for all the stuff you sold?
- Average gross revenue per sale—Divide gross revenue by units sold. If your pricing never varies, this is pretty basic. If it changes from customer to customer for whatever reason, this will help you understand what your average is per sale.
- Gross expenses—How much did you spend on everything for your business? Include material costs, internet, travel expenses, shipping, etc.
- Average gross cost per sale—Break down your gross expenses per unit.
- Average profit per sale—And now we land on the prize. Given your expenses, how much are you really earning for each thing you sell?
There’s one important thing missing here: time. For a month or two, keep a log of all time spent on your side business. Include phone calls, time spent acquiring materials or researching a project, travel time, emails and other communications. Average this per sale as well and then compare to your average profit.
How much are you actually making per hour? What does that translate to per year?
This data will let you know what you need to charge to break even or make a profit. This exercise can also help you evaluate where you might want to cut costs, look for more affordable vendors, or work more efficiently.
Evaluate what your customers are willing to pay
This is a more subjective exercise but also more important. Whatever your analytical data has revealed about your costs and potential profits, it’s all meaningless if people aren’t willing to pay for what you’re offering. Start with doing some basic research.
Competitor analysis
Who are your competitors and what are they charging? Follow their social media and websites. Sign up for marketing emails (TIP: make a more anonymous email account for this). Keep track of the following:
- What are base prices?
- What services/features are they offering that you are not? If their offerings are more complex than yours, price down. If you offer more comprehensive services, price up.
- What kinds of deals or sales do they offer and how often?
- What are their reviews saying?
Customer feedback
New entrepreneurs often adopt a “fake it until you make it” persona with customers—acting as if they have been around forever and have all the answers to establish trust.
Take a different approach with your first and newest customers. Yes you know what you’re doing, but reach out and be honest about things on which you need feedback. Welcome them into a new and exciting relationship—they’ve gotten involved on the ground floor of something that is destined to be huge. Ask for feedback about current pricing, what they might be willing to pay for additional or enhanced features, and what their experience has been with your competitors.
Put it all together
Pricing is going to be trial and error for a while, but going through the above exercises starts you off on solid ground. Set your initial prices to ensure you are covering your expenses and making a small profit that you can reinvest into your growing business. Adjust as needed based on the market and customer feedback. Before you know it, you’ll be seeing a substantial increase in your supplemental income and start evaluating when your side hustle becomes your solo hustle.
