How To Make A Profit In Small Business
Guess what? A recent study by Kabbage showed that 51% of the entrepreneurs they surveyed were not paying themselves a wage. Can you believe that? The majority of small business owners were working for nothing – less than minimum wage – in and on their business. You wouldn’t give your employee of the month $0 a week (nor would they work for that little anyway!), so why do you treat yourself in the same regard?
Maybe you can believe it. Maybe you yourself are part of the majority, chipping away at your business, but not seeing the return on value that your business deserves. Not seeing the cashflow you dreamed of when starting a business.
You may think that not making a profit is acceptable, especially in the first year of business. And it can be. But do you have a plan to make a profit, other than ‘get more customers’? Do you know exactly how many customers you need, how many products you need to sell, how many clients you need to book to make a profit? What if we put your own wage into that? How much would be a reasonable amount to earn this year. And what about next year? And the next five years after that?
Or maybe you’re making a profit, but you’re recycling that money into your business instead of actually making any money yourself. You might also think that’s ok – after all, it takes money to grow a business, right? While it does take money to grow a business, it takes a lot to be the owner of a business, too. And that’s something you should be paying yourself for. The thing is, if you don’t factor in your own wage for the first two years of business, chances are you’re not going to do it for the rest of your businesses life either.
So how do we start changing our relationship towards taking home a wage? Or even how do we secure enough money to even make that a possibility? Let’s dive in to why, and how to start paying yourself as a small business owner.
Before you even take a look at your spreadsheet, your budget, your prices, your bank account or anything related to money, you will need to do the most important thing; change your mindset when it comes to money.
Did you know that the wage gap exists within business owners? Research from FreshBooks found that women entrepreneurs were paying themselves 28% less than their male counterparts. There are a lot of reasons for this. Women are less likely to secure funding for their business, meaning more funds are going into investing in the business compared to going into their pocket.
But I think the biggest reason, and I think you’ll agree with me, is our mindset towards money and profit. Even when we’re setting our own wages women are less likely to pay themselves than men! We have such a mindset towards money that we almost believe we shouldn’t be paid a living wage for the work we do. That there are other, more important things to pay money towards, and our own pockets is just not a high enough priority. We see this as women in lots of different areas of our lives, where our needs and wants become less of a priority, and it’s not a difference in the business world, unfortunately. However, taking the steps to make the mindset shift that we deserve to be paid, and deserve to put our own interest first, is ultimately what will make you money.
Take A Look At Your Budget
How much money do you believe is an affordable wage for yourself? How much would you be charging yourself an hour if you broke down all the work you did? When you include this amount in your budget, you can start creating an accurate amount that you need to make every month for you to pay yourself. If you include your basic wage - the minimum you need to make to survive - in your business expenses, it changes your goal. You know exactly how much you need to be making, how many clients you need to secure, how many products, etc. You have a clear cut money goal, which can be used as a KPI.
Once you’ve included your wage, it might also be important to have a look at what else is in the budget. Is there any unnecessary spending that you can cut? Any subscriptions that don’t need to be in there. Any areas that you can cut back on. Also setting a budget and spending limit within your business, just like you would a personal budget, can help you manage your money better.
Once you know you’ve cut out all unnecessary spending, it’s time to have a look at what you’re charging your customers. This is something that might also need a mindset shift. Too many times we under charge, or charge something in the “budget-friendly” area that actually leaves us out of pocket. It’s great to charge budget friendly prices, as long as you’re still charging what you’re worth. If you feel like you may be undervaluing your work, or if you’re charging prices that aren’t giving you a wage for your time and effort, it’s time to up those prices.
And I know what you’re gonna say next; you’re worried about losing clients and customers if you charge. Here’s the thing; the right customers will pay you what you charge. When I started valuing my own work to charge what I’m worth, other people started valuing my work, too. After all, how could I believe that I was kickass at what I did, and how did I expect others to think that, if I was charging rookie prices? Cheap prices equate cheap quality in peoples minds. And if you’re good at what you do, you should be making money from it, and you should be pricing accordingly.
Your Ideal Client
If changing your prices is the way you need to go to start paying yourself a wage, it might be also time to reassess your ideal client. Your ideal client may change as your prices change, and that’s ok. If you don’t even have an ideal client, or you’re not really sure who you’re ideal client is, it’s most certainly time to create one.
I can tell you right now, when I was taking on whatever work I could, I definitely was not getting my ideal clients. I was dealing with clients that were never happy with my work, clients that were, at best of times difficult, and clients that were giving me work that didn’t even align with the work that I was best at. If you’re not making money in your business, that you get to take home and call a wage, it might be time to look at who is paying you. Are these people the right fit for your business and brand? Are you marketing to the right people? Have you narrowed down your Ideal Client Avatar so well that you know exactly who should be buying from you? If your ideal client is someone who doesn’t value your work enough to pay what it’s worth; guess what? They’re not your ideal client.
You probably started a business because you’re passionate about what you do – and also because you want to make money! Don’t let that become less of a priority, and let yourself value your work and time by paying yourself.