Archive for Marketing
Valuing a “service”
One constantly shifting factor in a service business is finding that magic “happy medium” between the divergent concepts of “cost” and “worth” (what it costs your business to be useful to a client and what you think your clients are willing to pay for something useful).
In today’s economy, keeping a steady workload can sometimes force you to abandon both of those considerations in favor of approaching the problem from a more survivalist approach: “How cheaply can I afford to offer my services?”
Before you undervalue your services for survival (or undermine the market your competitors have established FOR YOU), let’s take a look at the cost of doing business. In this example I’ll break down a Owner/Operator service business (Self-Employed “wage earner” as opposed to “business owner” who employs many).
There is a dramatic difference between earning a wage and owning a business – I’ll discuss that in another article.
In either case “time is money” as they say – so I’ll start with wages (and some assumptions):
- Assumption 1: Let’s say you’re a billable independent service provider w/$15k in supporting equipment and/or software (musician, photographer, videographer, graphic designer, web designer, writer, analyst, etc…).
- Assumption 2: You don’t have any employees and your business operates with the least amount of overhead possible. Whenever something gets out of your area of expertise you hire other subcontractors to help you pick up the slack.
TIME: For this example I’ll use a $50,000/year salary as a baseline (rough national average).
For a W2 employee earning $50k/year it would cost the employer about $65,000 per year (taxes, benefits, insurance, etc…). Sole Proprietors are not W2 employees but they do still have liabilities on their earnings and a responsibility to their retirement planning, all of which will likely make their costs about the same. That means if you want to earn $50k/year you have to bill $65k/year (that is the base pay multiplied x 1.3). Want $100k a year? Use $130k for the math.
MATH:
- $65k/52weeks = $1250/week
- $1250/36hours = $35/hour
Why 36 hours? Even if you work a 50 or 60hour work-week it isn’t all billable to a client – you own your business and you don’t charge your customers by the hour to do your own books, deal with your accountant, plan your marketing and advertising, pay your bills and bid jobs, etc… It is reasonable to assume you will burn at least 10hours a week that you aren’t paid for.
Using the above math we have established that your survival as a “wage earner” (not a business owner) requires you to bill for your time at a minimum of $35/hour and for a minimum of 36hours/week (assuming all client expenses are reimbursed at exactly what it costs you). That’s the cheapest you can work (before factoring in anything like additional equipment, job materials, insurance liability on subcontractors, etc…). It doesn’t matter if you work in your business (or on your business) for 60 hours each week – you still have to bill at least $35/hour for 36 hours (or $1250/week).
OVERHEAD / SUBCONTRACTORS:
To determine whether you are charging the appropriate markup on subcontractors/vendors, you simply need to determine three things:
- Does the difference between what you pay your vendor and what you bill your client equal your minimum rate after factoring in the amount of time it takes to manage/communicate with that vendor? ($200 in markup in a situation that takes you 10 hours to coordinate the work of your vendor only equals $20/hour).
- Can your subcontractors/vendors provide services at lower rates than you presently charge your client? (if there isn’t any built-in margin you will want to either raise your rates to create a natural margin or value a quote using #1 to calculate the margin)
- Is the perceived value of what you can provide by using a vendor or subcontractor worth the “perception” it has on your rates? (if you charge a customer $35/hour but your graphic person is charging $100/hour what is the perception of your talents to your client? This is how you determine whether you quote a “project” or an “hourly rate” because the perceived value of a project may be completely different than the perceived value of your time).
ASK YOURSELF (do these assumptions match your business):
- Can I bill 36hours/week in my field? (If not, you need to divide your weekly target by however many hours you can actually bill to a client).
- Can the clients that I have access to afford my rates?
- Can I deliver my service reliably at this rate? (and have client successes result in more work)
- Is my rate too affordable (this is a perception…and is mostly based on the market you work in – sometimes pricing yourself too low can actually hurt your ability to be taken seriously)
- Am I valuing the cost of my education?
- Do I have more than $15k in equipment?
- Are you above or below “average”?
In Short (this example): The least you can charge is $35/hour. The most you can bill is 36 hours. Is that a value for a useful service? Is that enough to survive in your world?
PERSONAL TAKE:
At Mahar Enterprises, Inc. our base rate is $65/hour (which is based on my personal baseline for all consultants).
The only time we charge more is when we can’t handle a scope of work with our existing pool of talent (or when travel is required). Travel changes everything – if only because most of the expense of my business is the equipment, software and technology which all live in my office (it isn’t as mobile as I am personally, people still need it in my absence and it has to be “duplicated” at a cost that is always applied to the job at hand for my clients). We have established a few services which are budgeted lower because we have made them more efficient (and in some cases they even replace “advertising” – a cost we would otherwise incur, so we can afford to apply the savings to that service).
Our competitors charge $250/hour for some of the services we provide. We have chosen to undercut the market so aggressively because the concern of “perceived worth” is less important to me personally than is actually “delivering something that any client can afford” (and doing it better than someone who charges so much more).
Because our core services are either “Delivery” or “Management”, we can remain focused on the simple cost of “our time in delivering the service” (and not worry about the perceived value of what we are delivering). Vendors worry about that, not us.
Each business is different. I value services based on my ideology of “removing handcuffs” from business owners. Everything has a cost. We operate on the most basic “Cost +” mentality rather than the value method our competitors and clients use (their method being more of a salespitch or rationalization which says, “this saves you $X so it is worth $X”).
Let’s be honest: If it doesn’t save you money or make you money it’s not worth doing. The perceived value and the cost are two different things. I couldn’t care less what someone says a service is “worth”…all I care about is that my clients can afford the “cost” (and that the cost is worth incurring). In answer to that question we’re always the most affordable and creative solution so I don’t have to defend the perception of “value”.
TO BE CLEAR: We don’t always recommend the “Cost +” approach for our clients in THEIR BUSINESS because the reality is that successful business revenue models rely on exploiting “perceived value” (in my business, however, I’ve reserved perceived valuations for PRODUCTS…not SERVICES). For the purposes of Mahar Enterprises, Inc. we’ve simply shaped our perceived value as “the most affordable solution for a truly necessary service” (rather than demonstrating “return on investment” in order to emotionally provoke clients to choose us over our competition). I personally find it easier to clearly say to business owners “once you decide something is necessary to your business, we are without question the most affordable place to get it done properly”. That approach may or may not work in your business but it works for mine (but I am also a business “owner” instead of just a “wage earner” – as mentioned, I’ll discuss the distinction in another article).
Feel free contact me to schedule a valuation study of YOUR RATES. We can do it under an hour, in real time and it costs $65. We conduct our services with complete confidentiality.
Regarding MY VALUE: I look at it this way - if a client doesn’t feel it is worth $65 to formally dissect their rates/business and gain access to some really candid/helpful advice, they might as well stop shopping consulting services in general because my competitors start at $150/hour….and I already gave them free advice (above).
Doing business is easy…but only once you’re valuable and useful…as an enterprise. That starts with “rates”.
- Mark
UPDATE: 9/24/11
After 11 years of operating with minimal overhead and providing all services exclusively with in-house talent, our workload has required that we add production personnel and programmers (all of whom are $100/hour or more). As a result, we’ve been forced to modify our rates.
Beginning October 1, 2011 our 2012 rates will go into effect at $130/hour (which is a 30% margin on contractors, and includes use of all production facilities at our disposal [no room rental fees for any production, taping, broadcast or commercial media]).
Social Marketing (Facebook, etc…)
Everyone in the web world is talking about the value of social websites as a catalyst for your business. It seems every business is now jumping into the Facebook and Twitter pond.
If you do decide to start a Twitter feed or a Facebook fanpage for your business, there are a few things that you should keep in mind about social behavior in formal social forums.
1. The art of using social sites for promotion is a fine balance between promoting on YOUR PAGE with inpunity (and despite apathy), while not subjecting your followers/fans to gratuitous personalized mail and newsletters (particularly not “calls to action”). Social means social, it doesn’t mean “accept my delivery, read it thoughtfully, then take action”. Don’t expect “action”, simply expect exposure. Fans, Friends and Followers will click on your “internet channel” if they feel it is worth viewing. They are not subscribers or another inbox for your marketing – save that stuff for your newsletter/mailing list.
2. Shame (or something like it) shows up in the strangest places. Somehow, a sense of social dignity can surface and becomes a measure for restraint – it can become an emotional obstacle whenever a free promotional opportunity is actually “called one” (or acknowledged as one). This is worthy of note because any breakdown of the “social illusion” prevents an otherwise proactive person from engaging in even the most convenient of free resources/interactions (but, for some strange reason, if it doesn’t look like an “advertisement” people are willing to abuse it as a resource and interact gratuitously). Figure that one out? I’m not here to explain audience psychology, I’m just telling you what the organism does.
3. The best social marketers are kind of in denial and engage in the act of promoting themselves passively (“Just hopped on a plane for another trip to Florida for the pet food client - ugh – I’m gonna be beat tonight”). People are more apt to “pretend not to promote themselves” than they are to actually OPENLY promote themselves (or their business). Over the years I can include myself in this category on more than one occassion (so I’m not minimizing anyone or their human psychological weaknesses…I’m simply being honest). Psychology is part of Dr. Bell’s acumen – I’ll leave that one for him to elaborate on.
The point is: Engage in social marketing by simply being SOCIAL (and the marketing will take care of itself). Approaching it from the other direction is a strange violation of “social forum etiquette”. I don’t know why. That’s just the nature of the organism.
If you don’t believe me, you can try the same test I did when this awareness occurred to me:
I posted a status which said, “Today I’m inviting anyone who wants to tell all of my facebook friends about their business or product to drop a mention. Right here, right now – plug it, promote it, pitch it. Go!:”
ONE REPLY – one person posted their company with a link - out of hundreds of artists, business owners, etc… Why? Because I actually called attention to a social marketing forum – I labeled it what it actually was. I’ve said “hello facebook” before and gotten 15 replies with a bunch of “thumbs up”. Don’t try to understand it, but do be aware of it.
People on social networks (even the ones who are there to promote themselves) are not openly willing to admit they are there to promote themselves…and everyone has a sort of “anti-social trigger” that kicks in the moment something stops “pretending to be social”. This can be an advantage or a disadvantage to your personal style, depending on how you structure your communication with your “friends & fans”. In any case, don’t expect action – simply expect an audience.
REALIZE: social networks are inherently narcissistic environments - momentary digital soap-boxes for the user (it’s all about them). Most people are instinctively uncomfortable acknowledging that their facebook or twitter account is really “all about them and their ego”…it is psychological evasion on a really basic and NORMAL level (it’s not a mean acusation, it’s just the truth – no harm in having a place to call your own and no harm in having instinctual defense mechanisms around your natural interest of having an audience). We have an ego and it feels good to feed it (particularly when it feels more like interaction than soap-boxing). That’s part of what makes us human. Again, Psychology is part of Dr. Bell’s world – ask him? I don’t know.
The upside is that if you are equipped to invest yourself in your friends/fans/followers (by acknowledging THEIR world instead of just broadcasting through your own) you will fast become a welcome part of their day. I will openly admit that I’m more apt to broadcasting something that I’m promoting in the moment than to actually invest in the effort required to be personally relevant in the lives of hundreds of people on a daily basis (the latter being a passive effort to encourage and approve of them/their ideas, personally). I try to engage personally with a couple people each day (on THEIR posts, not my own). Most often I poke fun at myself, as if facebook really is “all about me”. Everybody has a personality trait (I lead with volunteering as the butt of a joke). The goal here is to empower you with my perspective, for whatever value it has. (maybe none?) I don’t know - most of my facebook friends are actually my real friends…not some fanbase I’ve built up. To each his/her own.
When I hit my own wall of time & energy on a social level, my formal default mechanism is “motivational quotes” (typically related to business). This month I plan to cycle between quotes in revolving category fashion: “Learn”, “Teach”, “Love” & “Honesty” (my way of enforcing my business philosophy and ideas about life’s opportunities). Even if I do reach someone with my ideas or thoughts I’ll likely never know about it – that’s the social component and it requires a willingness to simply “contribute”.
We’ve all got our bag and we all want to promote it. Don’t over-promote on a social network and you’ll never run the risk of being considered “baggage”.
Happy “socializing”.
- Mark
PS. For the record: I would NEVER get away with this flavor of expression on Facebook or Twitter – know your forum and adhere to it (this more corporate blog format on MaharEnterprises.com has relevance as well – you’re reading, after all).
Thinking sideways
Sometimes the answer is right in front of you, but most of the time the answer is right next to you.
Lateral thinking is an important part of business agility. While many businesses only think in terms of “forwards and backwards”, the business world is multi-dimensional. Many business owners only measure along one axis. The pitfall of operating a business on one axis is that your problem-solving skills are reduced to one axis (your intellect becomes a product of your practice).
Rockets travel a trajectory (and very few businesses are like rockets). A business can’t travel on a straight mission line.
Business is more like sailing - traveling from one point to another requires a series of course corrections – tacking left, then right, then left again.
Maybe you’re stuck with 1,800 branded racquet balls from a past event because of a quantity typo on the production order?
Thinking forward and backward makes that error a net loss…by creating “garbage”…all because someone hit the ”zero” key one too many times.
Thinking sideways provides for creative “recycling”.
Example: Charge another client a discount rate to add their logo to your overstock and give them away as promotional items (branded stress relievers?)…and use them to market the stress-relieving component of your business (product or service). You have to advertise anyway, right?
Nothing is garbage until it is completely destroyed.
Gardeners, for example, appreciate the value of thinking sideways (because recycling is part of their craft) – what one person considers “waste”, a gardner would consider “fertilizer”.
Maybe I should make an illustration of a guy in cover-alls standing under your business with a bucket?
Nah – I think you get the picture.
Mark