Many people running a small business struggle with the fact that they aren't earning what they would like to. Video production is no different.
If you want to pay yourself more, the equation and the variables that you can adjust are really quite simple.
Profit = Price x Quantity - Cost
You can increase the price, increase the quantity of work you do, or decrease your costs. Since most people are short on time and it's hard to cut your way to greatness, we are going to focus on how to increase what you charge.
While the equation is simple, raising your rates can be a challenge. But, if you can successfully increase your rates then you may find yourself earning more, working less, and building long-term relationships with clients who highly value your service.
Here are some tips and resources that will help you get started.
Hourly Pricing Limits Your Potential
A common model of pricing is cost plus. Basically, you determine the hourly rate you need to charge by adding up all the costs of running your business, including your target salary. Divide this by the number of hours you will actually bill out for in a year, and you've got your target hourly rate.
The benefit of this approach is that it's conceptually easy to understand and calculate. When pitching work all you have to do is estimate the number of hours it's going to take, do a little multiplication, add the cost of any extra resources you may need, factor in risk, and then send off your bid.
The downside to this model is that it puts the emphasis on prices and hourly rates. Your service tends to look a commodity that is easily compared with the other people pitching for the same work. Unfortunately, there is always going to be someone that's willing do to the job for less. How many times have you heard about someone willing to cut a music video on Craigslist for $350.
This often means that people discount their rates, underestimate the number of hours it will take to complete a job, or provide extra services that end up costing them money. The net impact is that people often don't earn their break even amount when they price this way. The problem with this model is that it ignores all sorts of information. It doesn't really factor in the competitiveness of the market, and the price sensitivity of customers. More importantly, the hourly rate you charge isn't necessarily a reflection of the value you are providing.
The end result is that your earning potential is capped by the number of hours you work and your hourly rate. You can raise your hourly rates over time, and if you are pricing based this method I would recommend doing so, but there are other pricing strategies that can produce greater gains than raising your rates alone.
Start Pricing Based On The Value You Provide
One way to substantially increase your income is to make the shift from cost plus pricing to value-based pricing. So what is value-based pricing?
Basically, instead of pricing based on the cost of your time, you estimate your clients perceived value of the solution, and then charge some reasonable portion of that value. The more value you provide, and the more uniquely qualified you are to provide that value, the higher you can charge.
So lets say you are working with a pharma company to produce an educational video for doctors. Your value is going to come from helping the client understand how your approach will convince more physicians to prescribe their product. Instead of one video perhaps a series of videos is going to sell more, or maybe it's additional videos targeted at pharmacists, etc. What's important is that the client is interested in results and how you can help them meet their objectives.
If the value you provide is based on your ability to help your clients meet their business goals and objectives, then the journey towards value based pricing needs to start with really trying to deeply understand your clients.
Intuitively, this should make sense. If you don't understand your clients, their pain points, and the results that they would like to see, then how can you really understand what value you can provide.
Your initial conversations with a client should be focused on asking questions, actively listening, and trying to deeply understand what they would like to achieve. Sometimes it's easy and they know exactly what they want. Other times, it's through asking questions about their business and objectives that the real details of the project come to the fore.
Once you understand what the job really is, and your potential clients know that you understand this, you will be in a great position to craft a proposal and put a price on what you will do for the client.
My friend Mike, recently wrote an article about how he only worked 19 days in a year and earned over $200,000 after rethinking his small design business and implementing value-based pricing. Among the great advice in this article, he suggests that you defer conversations about price until you have had detailed conversations about your clients needs, and that you should frame your service as an investment, not an expense.
If you start the conversation by throwing out a price, you’re just an expense.
Nobody likes expenses, so clients — typically entrepreneurs and businesspeople — try to keep them as low as possible.
By following my process, I was able to position my fees as an investment rather than as an expense.
That’s because the price would be directly connected to something the client wanted to achieve — it would be a means to help them get results.
When you position your price this way, the client merely wants to know that the investment is a sound one.
As an example, if I was proposing to build a website capable of creating an additional $100,000 of profit annually, I would ask the client to make an investment of $40,000 in their website.
Essentially I based the price on the expected value to my client, not on how long it would take me to do the work.
That’s a great deal when you think about what a new site is going to deliver for the next several years, for most businesses.
If there is one thing that you can really do to increase your income, rethinking your approach to pricing is probably it.
For a deeper dive into value-based pricing I would recommend spending an hour reading Mike's FREE book, Breaking the Time Barrier - How to Unlock Your True Earning Potential. It's written in an easy to follow conversational style and is packed with valuable lessons and answers to all sorts questions that pop up when you start to think of making this type of switch.
Find Your Niche
Another way to increase the rates you can charge is to specialize and find a niche. The benefits of being an expert in a particular niche extend far beyond pricing.
When you are operating in a niche it becomes easier to find your ideal customers. You begin to know where they are, how to reach them, and how to communicate with them. This creates efficiencies in terms of where you invest in marketing.
People who focus on a particular a niche market, tend to develop a deep knowledge of the common problems in the business. This means that over time, it becomes easier to identify where they can add value to clients. Yes each one is an individual, but your discovery time with a client can focus on what makes them unique vs. spending lots of time talking about the general characteristics of their market.
Finally, references within a niche mean a lot. As you develop a consistent track record of delivering value for customers in your niche, it will become easier to make the case that you can unlock similar value for others in the same area. Further, examples in your portfolio will be more relevant to your customers. The bottom line is that prospects will be more inclined to trust your judgment.
If you pick the right niche, then all of these things work together to support your ability charge higher rates than if you don't specialize. When you try to work with anybody, it's hard to explain what makes you uniquely capable of solving their problems or realizing their vision.
For an example of someone that has done this well, take a look at this interview we did with Sunnyside pictures. Jon may not have deliberately set out to focus on university recruitment films, but after completing a couple of jobs, people started coming to him with these projects because it was clear that he could deliver great results.
Convince Yourself That You Are Worth It
Has your inner voice every told you that you aren't worth X dollars an hour?
Guess what, if you don't believe that you are worth what you are charging, then your clients aren't going to believe this either.
So before you start talking to clients about your rates, it's a good idea to spend some time soul searching and thinking about what makes you different. Nailing down this unique value proposition will help you maintain your confidence as you pitch for work.
Review your past projects, think of the results you helped clients achieve, look for tangible proof that you can showcase, and don't forget all the other ways that you added value over the course of these projects. This is a business of relationships, so being easy to work with and delivering on-time and on budget are important value drivers.
If you are still worried about increasing your rates, think of yourself. What you are selling is all the knowledge and expertise you have accumulated over time. With each job, you learn something and get better. Over time, the potential value that you can provide increases, and so too should your rates.
Start Raising Rates With New Clients
Many people are afraid of damaging relationships with existing clients by increasing prices. An easy way to get around this is to start raising your rates with new clients. This works with either pricing paradigm.
Success establishing your benchmark with new clients will give you confidence to start changing the relationship with your existing customers. You may be surprised at how receptive some of these clients might be. By virtue of their experience with you, repeat customers have a good understanding of the value you can deliver.
Obviously not everyone is going to accept your higher rates. As you bump up rates with new clients, you will probably realize that some of the older clients are no longer the right customers as they don't have the willingness or capacity to pay for the full breadth of your services. It's o.k. to let these clients go, and focus on those who see value in what you can deliver.
Over time, you will end up with a better client base that values, and is willing to pay, for the unique services you provide.
Think of Pricing as a Journey
Pricing is a very hard part of marketing, and nobody gets it right the first time. You should be prepared to adapt your pricing and try different things over time.
Experimenting with your pricing strategy is worth the effort. As you move towards getting paid what you are worth, you may find yourself earning more, working less, and building long-term relationships with better clients.