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Make Sure the Price is Right

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If your goal is to build a thriving and sustainable business entity (and I know that it is), it’s imperative that you determine the right price point for the goods and services you sell. Establishing the most advantageous price range is an element of your marketing strategy. That means your pricing strategy must align with both the brand identity and market position occupied by your products and services and also be acceptable to target customers. Understand where your company is—and where you want it to be—in terms of perceived brand value. Do you consider your company to be a discount option, middle-road, or a luxury option?

Pricing is integral to business profitability and a cornerstone of business success. Experienced business owners and leaders agree that a pricing strategy can make or break a company—set prices higher than what customers care to spend and sales are lost; set prices too low and revenue potential is not achieved.

Surely, you’ve noticed that pricing has been a sensitive topic over the past few years, as inflation that (allegedly) topped out in 2022 caused the prices of numerous goods and services to rise as business owners sought to protect their profit margins from increases their organizations faced for the raw materials, acquisition costs, transportation and other expenses associated with bringing goods and services to market.

Unfortunately, readers of this post—mostly, Freelance consultants and SMB owners—often lack the financial cushion to withstand all but the briefest periods of economic adversity. Enterprise companies and other well-capitalized entities are better equipped to absorb both the rising costs of product production or acquisition and customer push-back associated with higher retail prices. Instead, the “little fish” are squeezed between inflated business costs and customer reluctance to accept price increases. Their reluctance may stem from budget cuts that inhibit B2B sales and in the B2C sector, the problem can stem from wages that may not have kept pace with inflation. Both scenarios can lead to prospects who second guess their need to spend and result in shrinking sales revenue.

As was discussed in last week’s post, being in business is all about solving problems, is it not? In order to survive, companies large and small must at least generate enough revenue to cover operating costs. Increasing the price of your goods and services might make you nervous; it may appear that you’ll lose a customer or two and that is worrisome. Keep in mind that customers are aware of inflation. They also understand that you are in business to make a profit. Optimizing your pricing strategy is the best defense. Offering a simplified version of your products or services can perhaps be an attractive option that may allow you to retain price-sensitive customers.

Calculate production/ acquisition costs

Let’s start with the math: (Price – cost) x quantity = profit. Before pricing your products or services, you must calculate the time and money you spend to obtain or create them. Tally the costs of each item purchased and each hour spent to produce, acquire, or create each product or service that you sell. So, if you purchase at wholesale products that you resell, calculate the costs of buying and shipping those items. If you manufacture the products yourself, or outsource the production/manufacturing, calculate the costs of the materials, manufacturing expenses, employee wages and the time you devote to production tasks.

Likewise, if your business is based in the knowledge economy—maybe you customize business strategies, or you create sales training workshops that you present in video classes—to the best of your ability, calculate the number of hours spent designing your intellectual property and assign an hourly rate to yourself so that you can determine the wholesale cost of your work (keep in mind that you’ll bill your clients at retail).

Once you’ve confirmed the amount spent on obtaining or creating your products or services, you will have discovered a vital piece of financial info—the break-even point, which represents the minimum selling price required to cover the costs you’ve invested to obtain your products and services. For info on pricing tools that might be useful for your business entity, click: https://www.symson.com/blog/best-competitive-pricing-tools

Benchmark against key competitors

Both industry statistics and the pricing habits of key competitors can provide guidance when evaluating potential pricing strategies. Within each industry, there are typical standard mark-ups and profit margins that are recognized as normal ranges. This info can help Freelancers and SMB owners to first, understand if their product/ service acquisition or development costs are too high or low relative to the typical selling price range and also where, or if, their selling prices fall within the typical price range for that product or service.

Further confirmation can be gained by investigating the pricing of two or three direct competitors, to discover an upper and lower price tolerance for your customers and identify a pricing sweet spot. In other words, for products similar to what you offer, if you discover that the most expensive competitive price in your market is $300 and the lowest is $100, that’s a convincing indication of the price range your customers accept and you can therefore confidently price your offerings somewhere between those values, guided by your production or acquisition costs and your company’s brand identity.

Emphasize value, not price

Benchmarking the pricing of certain competitors can be instructive but you should avoid copying what your competitors do. Competitive pricing intel is best utilized as guardrails that help you discover a price range that your customers can be expected to accept. Believe that your products and services can stand on their own merits—that is, the value your brand delivers. Your company and its products and/or services are more than just a price tag, more than a commodity.

Too many Freelancers and SMB owners attempt to win customers by being the cheapest game in town. This mindset nearly always leads to underpricing—undervaluing— your products and services and your company as well. When you choose to primarily compete on price, it is unlikely you’ll ever preside over a thriving entity. It’s much more likely that you’ll be trapped in a race to the bottom as you compete with those who are willing to undercut your price whenever necessary. According to spellbrand.com, “by being the cheapest or lower priced, you attract the wrong customers. You attract customers who make decisions based on price and not value.” Leave the price wars to Walmart and focus instead on how much customers might be willing to pay once they understand the value associated with your organization.

When you compete on value, you will attract and interact with prospects who respect you, your professionalism and abilities, and your company. The moment you decide to emphasize the value, you will attract those ready to invest at the level of service or product you can deliver. 

On that note, along with a thrifty vision of your product or service to attract price-sensitive prospects, develop also a VIP up-sell category in each product or service that you provide because there are always customers willing to invest in the very best you offer. Including a premium option of your products and services is a quick way to add even more revenue to your business income streams. When you are playing the long-term game as an entrepreneur, you want the best.

Thanks for reading,

Kim

Image: LazingBee

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Building a Referral Partnership

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Now that you’ve got your business up and running, beating the odds and experiencing some success—congratulations!— ambition may bring thoughts of growing your entity. It’s natural that you’ll want to realize the dream that drove you to launch a business. You’ll wonder how you might continue to grow your customer base and revenue and become a force in your marketplace.

You’re dreaming big but you’re also pragmatic; you’d prefer to attain growth without taking on onerous debt or committing to some other risky strategy. Your choice of strategies may be limited but there is at least one that, over time, has the potential to deliver the growth you’d like to see without putting a dent in your budget. Your ideal growth strategy could be a referral partnership.

A referral partnership is an agreement in which business entities refer customers to one another. A well-chosen and consistently executed referral partnership agreement can become an important element of a business growth strategy and enable the participating businesses to reach new markets and access new customers to whom they can introduce their respective brands as they book additional revenue. While the reciprocal benefits of referred customers is the foundation of the agreement, in some instances a bonus might be paid for referrals that result in a sale or billable hours. Negotiating an agreement that is considered advantageous to the parties is crucial to building a successful and sustainable referral partnership agreement.

The principal building block of a successful referral partnership is your list of potential partners whose customers can be reasonably expected to become your customers as well, as your own customers can likewise be recommended to your referral partner’s business as a potential customer. The viability of a referral partnership rests on what you and your partner can offer one another.

When you think of business colleagues, or even your customers, whose product and/or service line complements, but does not compete with, your offerings you can create a short list of potential candidates and discuss the possibility of creating a referral partnership. There are other factors to consider when selecting those you’d like to discuss a referral partnership, as you might expect, including identifying a potential partner who shares your values and whose customers can be expected to have the motivation to do business with you and vice versa.

Once you have selected a partner, it is important to develop a clear plan for how the referral partnership will work and expectations for its performance. It should also outline the roles and responsibilities of each party.

Building blocks of a sustainable referral partnership

  • Trust

Trust is a core aspect of finding the right fit in a business partner, and evaluating trustworthiness often comes down to conversations, track record and intuition. This is why it’s essential to take the time to have those pivotal discussions around vision, values, professional and personal background. Sadly, the business relationship you went into with such high hopes and visions of the money the parties will make is closer to fantasy than reality. In fact, some 50 to 80% of partnerships fail in the first few years. Before you finalize a deal, build a strong foundation of mutual respect and trust with your referral partner to increase your chances of success.

  • Similar values

To create a beneficial small business partnership, there needs to be common ground. For this reason, it’s important to ensure your prospective partner shares business goals and values that are aligned with yours. This goes beyond the desire to simply make a profit — it means confirming that you share similar core values that guide how you conduct business.

  • Define roles and responsibilities

Although there’s no legal requirement for a written contract that details the terms of a referral partnership agreement, getting things on paper will help participants to establish accountability, avoid miscommunication and defuse the potential for conflict that might arise from an underwhelming outcome, for example. Your referral partnership document can summarize the expected duties that participants will undertake to promote, whenever appropriate, selected products and services of a referral partner. A written agreement demonstrates that each participant is satisfied with the terms, in particular the amount of work that must be done to generate viable referrals. The terms and conditions of your referral partnership agreement might reasonably include:

  • Describe the responsibilities and expectations of participating companies (owners and staff)
  • Define what constitutes a referral
  • When referral bonuses (if applicable) will be paid and the amount paid per referral
  • Length of the partnership
  • Results that define success or failure
  • Timeline for assessing initial results and for declaring the partnership a success or failure
  • How the partnership can be terminated

Thanks for reading,

Kim

Image: © Everett Collection, photo by Conrad Hall (1970 Academy Award Best Cinematography) Butch Cassidy and the Sundance Kid (1969) starred Robert Redford (L) as the Sundance Kid and Paul Newman as his partner in crime Butch Cassidy. The film was nominated for Best Director and Best Picture at the Academy Awards and won four Oscars, including Best Original Screenplay and Best Cinematography.

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Subscription Model Spotlight

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The subscription-based business model is an American classic. From the newspaper that the neighborhood paperboy delivered every day to your parent’s house, to the magazines you looked forward to receiving from the mailman each month and, of course, the Book-of-the-Month Club, founded in 1926 and enjoyed by your grandparents, millions have bought subscriptions over the years. We trust the process.

As the e-commerce revolution lured millions of newspaper, magazine and book readers to digital formats and software as a service (SaaS) introduced a menu of business services that make back-office operations much faster and efficient, the number of products and services available by subscription has exploded. There are now hundreds of subscription-based businesses to indulge you, from cable TV and movies to goodie gift boxes for you (Hot Sauce of the Month Club) and your dog (Barkbox).

Subscriptions are the original recurring revenue business model, able to bring a fairly predictable amount of money into a business at predetermined intervals, making subscriptions adored by business owners (and increasingly, Freelancers). Customers also appreciate subscriptions: they make obtaining frequently used products or services more convenient and often less costly, since there is almost always a discount offered as compared to the price of a one-off item. Plus, time is saved and inconvenience spared when there is no need to repeatedly make purchases; a subscription guarantees that your order is complete and payment settled just once a year and renewed annually as desired (and sometimes renewed automatically, which means you do nothing beyond reading the renewal confirmation if no changes will be made).

What’s not to love? Monthly (or annually or quarterly) recurring revenue represents predictable cash-flow and every business owner wants it. The smartest, most forward-thinking business owners and leaders, including Freelancers, are brainstorming ways to integrate a subscription service into their company’s offerings. The good news is that the acceptance level of subscriptions in the general population makes it relatively easy to persuade prospective customers to buy. Persuading subscribers to renew the deal, however, can be another kettle of fish.

So, if the idea of selling your products or services by subscription comes to mind, first ask yourself which of your products or services customers regularly purchase throughout the year but might prefer to order and pay for just once a year and save themselves time and money? Float the idea with two or three of your steady customers and heed the reply. Adopting a subscription model requires serious forethought and planning and this is especially true for many B2B service businesses, where value is intangible and not always immediately recognized. For example, the value of software subscriptions is continually demonstrated with tangible and actionable information that’s generated on a regular basis and by frequent use of the platform by the customer. The value of leadership and Emotional Intelligence coaching, however, can be less immediately obvious.

Subscription business model experts reveal two critical success factors—perceived value and the subscriber experience. Regarding value, subscribers accept a recurring subscription fee when the product or service subscribed to consistently demonstrates its worth. Should the subscriber feel that s/he is not receiving value that justifies the subscription cost, the possibility of service cancellation is imminent. The benefits derived from the product or service subscribed to must be front and center in the subscriber’s mind. S/he must clearly witness or perceive the expected value, preferably through a noticeable, if not measurable, improvement in whatever need the service or product addresses.

Regarding the subscriber experience, quality control and the consistency of the expected outcomes delivered by the product or service are key. There is an ongoing need to maintain, and periodically upgrade, the subscriber service and experience delivered. Subscribers tend to expect service enhancements at regular intervals. Suggestions of other critical factors you may want to examine as you and your team evaluate the potential viability of a subscription model for one or more of your products or services are below:

1. Is the subscription model is right for your business?

 As noted above, do yourself a favor and confirm that enough of your customers will feel it advantageous to commit in advance to the purchase of one or more of your company’s products and/or services by subscription. Is it important to customers to reorder what you sell on an ongoing basis, or are sales typically intermittent or even one-off? Discuss with your accountant the amount of monthly subscription revenue needed to make offering subscriptions feasible for your entity. If you get a green light to move forward, it will then be necessary to develop strategies that promote and defend subscription revenue and minimize subscriber churn (i.e., cancellations). Be prepared to develop marketing campaigns that describe to current and prospective customers how buying your product or service as a subscription service will make life easier or doing business more cost-effective for them.

2. Subscription or retainer fee?

Even if you do a steady business with a certain client, for example, providing payroll solutions or website maintenance and security, a retainer agreement may be more appropriate than a subscription (both generate recurring revenue). A retainer fee is a fixed amount of money that a customer pays to a company/consultant in advance and for a specific period of time, typically, a month, quarter, or year. The retainer fee covers an agreed-upon scope of work or number of hours that the company/consultant agrees to provide to the customer. The customer can use the consultant’s services as needed, up to the limit of the retainer agreement. If the customer does not use all of the hours or services included in the retainer, the consultant still keeps the entire fee; if the customer exceeds that limit, the consultant can charge extra fees or negotiate a new retainer.

A subscription fee is a recurring fee that a subscriber pays to a company/consultant for access to a predefined service or product. The subscription fee is billed monthly, quarterly, or annually and the subscriber can cancel (sometimes) or renew the subscription at any time (usually toward the end of the billing period). The subscription grants access to the product or service, which the subscriber can use as desired. The consultant/company provides the product or service on a continuing basis or provides access to an online platform or membership access site.

3. Try before buy 

Consider offering a short free trial to allow prospective subscribers to experience the advantages of subscribing to your product or service—first month free, for example. Tempting current customers and prospects with a sample of your subscription service could convince a number of them to sign up and pay. Furthermore, you’ll make subscribing still more attractive when their pricing options are uncomplicated. Offer one standard monthly (or quarterly or annual) fee; if you also sell premium and/or economy versions of your product or service, price those subscriptions accordingly.

4. Set clear expectations:

Set clear expectations from the start of the subscriber relationship. Customers must understand what they’ll receive for the price they’ll pay–services, products, tools and/or supporting technologies. Subscriber info should walk customers through what the subscription offers, the level of support available from your team and company contact info.  Ensure that prospective subscribers fully understand the value they’ll receive, tangible (the product or service) and intangible (training, additional info and/or support).

5. Discounts for longer-term subscriptions

The monthly fee should reward longer subscription commitments—24 or 36 months, for example—with correspondingly progressive discounts. While some subscribers desire only short-term use, others will use your product or service basically forever. By offering subscribers a variety of subscription options and offering deeper discounts to those who agree to pay upfront for long-term commitments, you’ll have a better chance of attracting more subscribing customers and increasing recurring revenue.

6. Easy or automatic renewing

The subscription model is an excellent vehicle for customer retention, but your organization must implement strategies to further remind subscribing customers of its relevance to them and provide various incentives for renewing the subscription. Make renewing frictionless and enable subscribers to auto-renew (with an opt-out option). When you make renewal easy for subscribers, they’re more inclined to do so.

7. Quality control and customer experience

Subscriber satisfaction is not to be taken lightly; it is never a given. Ideally, you’ll find it in your budget to assign or hire (W2 or 1099) a subscriber experience specialist who will be responsible for ensuring that expectations are met. That person will also document and report on the turnaround time for resolving issues, as well as any recurring problems. Proper quality control offers you much-needed insight into subscriber concerns, which will drive ongoing service enhancements and continue to enhance subscription value. 

Furthermore, marketing experts have convincingly demonstrated that personalized communication is a deciding factor in reducing churn, building loyalty and re-engaging lapsed customers/subscribers. Your organization should collect as much subscriber data as possible and apply that info to generating email updates and personalized special offers that aim to encourage renewals. The goal is to maintain subscriber enthusiasm and reinforce the convenience, enjoyment and/or habit of subscribing. You want to avoid disengagement, complacency, or other dissatisfaction that may result in a lapsed subscriber.

8. Don’t skimp on packaging

If your subscription is a physical product, invest in premium packaging. With all due respect to the U.S. Postal Service, your product deserves better packaging than a flat rate priority box. While your physical product will require shipping, it is highly recommended that you avoid the temptation to save money by packing and mailing yourself. Instead, find a fulfillment house and outsource packing and shipping.

Your logistics provider will fulfill subscription orders for your product, packing and shipping those orders directly to subscribers in a way that effectively communicates the value of your brand and enhances the subscriber experience. The fulfillment center will also manage product inventory and store the inventory.

Thanks for reading,

Kim

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Should You Outsource? Think It Through.

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I’ll wager that the biggest obstacle Freelancers and small business owners face is limited time. There are so many responsibilities you must manage in order to keep the show on the road. Now look at the bright side—if you’ve got lots to do, it means that your business is growing and has the potential to grow even more. Your stumbling block is, most likely, that you have a small team (maybe just yourself) and you struggle to get your arms around a list of important decisions to make and other responsibilities that demand your attention. You may also have deadlines looming`.

You always assumed, but the point has now been emphatically made, that productivity is a key ingredient in the recipe for success. It’s imperative that you have the focus and ingenuity to develop goals and objectives that will promote your mission and then create and execute strategies and action plans that bring your plans to life. If you’re overwhelmed and stressed by an unmanageable to-do list, you’ll be unable to perform at peak efficiency. Circumstances will force you to make a change because at some point, every business owner must address the challenge of how to get the work done— on time, on budget and in ways that deliver a rewarding customer experience.

Spoiler alert—all potential solutions, including the choice of keeping the status quo (and eroding both the success you’ve created and your health), require that you spend money. The good new is, if you’ve objectively assessed your situation and determined how to efficiently handle your responsibilities, you will be positioned to increase productivity and business revenue.

Weighing your options

The process begins by confirming the tasks that must get done, acknowledging if anyone other than yourself can be reasonably expected to successfully perform certain tasks and documenting the number of days in a typical week you face a backlog of work. If you frequently work more than 50 hours per week, that indicates you’d benefit from bringing in help. If you frequently work more than 60 hours per week, that indicates you’d benefit from a full-time or part-time employee (W-2 tax form). If your need of assistance is more intermittent, for example, during the last week of the month or one or two afternoons a week, outsourcing (1099NEC tax form) is your best solution.

Make an honest assessment of your time, abilities, preferences and money. Furthermore, once you’ve decided which tasks are unsuitable for you, own the tasks that can be most effectively done by you. For example, it will likely be for the best that anytime the face of your brand must be represented, you, business owner, should be present. However, a number of office-based functions can be effectively handled by a savvy outsourced professional. An outsourced marketing expert will be able to suggest goals, objectives and strategies to jump-start growth in ways that the business owner may not immediately envision. A bookkeeper who has experience working with small or mid-size companies will not only bring the entity’s accounts up to a high standard of detail and accuracy but can also advise on issues such as cash-flow problems.

Accept that it may be too expensive for you to perform certain tasks if it diminishes your pursuit of billable hours. In general, if a certain task takes you or your team too long to do, it probably makes sense to outsource the function, especially if it’s something that must be done on a regular basis. Furthermore, if a task is highly specialized, it may make sense to outsource it to someone who spends their time immersed in that particular function and has a real expertise.

Consider outsourcing functions when:

  • You don’t have the ability to adequately perform the task
  • You have the ability to do the work, but dislike doing it
  • You have the ability to do the task, but the time needed to get it done is unacceptable (maybe because it’s specialized and you and your team lack the expertise)
  • You’ve realized how much billable time you’re losing by performing tasks that you could pay someone else to do (for less than your own billable rate).

Enable outsourcing success

Establish goals and define expectations for this new role in your organization, so that you can create a good experience for yourself, your team and the specialist(s) you bring in to provide outsourced services. It will be very useful to include in your productivity improvement journey an outsourced Human Relations professional who specializes in job analysis. This individual will discuss and confirm your recommendations of tasks that might be successfully outsourced and responsibilities that will be best handled by you, or current staff. Your outsourced HR adviser can also develop job specs, review and discuss your performance objectives and suggest the compensation you should offer to whom you’d like to hire.

Benefits of outsourced talent:

  • Cost: When you outsource certain tasks or services, you don’t have to pay the same wages as you would if you hired an in-house employee. Hiring outsourced talent is a way to manage fixed operating expenses as you nurture business growth. Furthermore, outsourced talent does not come with costs associated with in-house employees, such as taxes, insurance, holiday and vacation pay and other workplace expenses.
  • Efficiency: By outsourcing, you can free-up yourself and your team to focus on more important aspects of your business. This allows you to be more productive and get more done in less time.
  • Talent: Outsourcing is an attractive option when you need specialized skills or expertise only on an intermittent or short-term basis. Outsourcing gives you on-demand access to talent that would be impractical to permanently hire.
  • Scalability: If you have access to a larger pool of talent and resources, your business can scale up quickly without incurring the expenses associated with hiring W-2 employees or configuring additional office space, or even additional equipment rental fees. Chances are, your outsourced experts work remotely.

How to choose the right provider

When looking for the right expert to handle those functions you’ve decided to outsource, consider the provider’s specific industry experience. Choose providers who have excellent references and communicate well. When outsourcing critical functions or handling sensitive information, data security and confidentiality are of paramount importance. Assess the outsourcing partner’s security protocols, compliance with industry standards and measures to protect intellectual property. Evaluate their data protection policies, employee training, and physical and digital security measures to ensure the safety and integrity of your confidential information. Cultural fit and values alignment between your organization and the outsourced specialist are often overlooked but can significantly impact the success of the working relationship. Consider factors such as work ethics, corporate culture and shared values to ensure a smooth integration and collaboration.

Frequently outsourced functions:

  • Accounting and bookkeeping: Outsourcing accounting and bookkeeping services can not only save time, but also ensure that business cash is well-managed. You will be grateful when, for example, cash-flow is efficiently managed and you can make better business decisions. Moreover, you’ll be relieved to know that the business complies with tax regulations.
  • Human resources: Outsourced HR services can provide cost-effective solutions should you need to hire additional employees and decide whether the new hires should be brought in as employees or outsourced specialists. Your HR specialist can also create the job specs and refine your organization’s new customer or new hire on-boarding process, to ensure that all paperwork is present and written correctly and see to it that you present a seamless experience that reflects well on your brand.
  • Payroll: Outsourcing payroll services will save time and money by eliminating the need to close books or run reports after every payroll cycle. Regarding new hires and contractors, your outsourced payroll expert will ensure that all tax forms are sent in the on-boarding materials and that information to guarantee timely payment is included and signed by both parties.
  • Information technology: Outsourcing IT services can be beneficial for small businesses that need access to technical expertise without the overhead costs associated with hiring in-house IT staff. You must have a network that consistently delivers peak efficiency. Seamless and reliable IT performance is a necessity.
  • Customer support: Outsourcing customer support services can help your organization provide better customer service without having to hire additional staff or invest in expensive technology solutions that may not deliver the relationship-building personal touch that your organization needs.
  • Legal services: Outsourcing legal services can be a cost-effective way for small businesses to gain access to legal expertise without the onerous expense of paying to add the salary of an in-house attorney or law firm to your payroll. Depending on your needs, it may be smart to negotiate a retainer fee, if legal advice is a regular requirement. Otherwise, contact a business, patent, employment, or other attorney on an as-needed basis.
  • Marketing: Outsourced marketing services can be beneficial when you need help creating and executing marketing strategies, running campaigns and tracking results. Your outsourced marketing expert will introduce marketing automation to your company, or will optimize the automation system you have in place. This specialist will also maintain your social media accounts and ensure timely responses to comments and questions.
  • Web design and development: Outsourcing website design and development services can bring a level of design and technical expertise to your website that you and your team do not possess, even if coding skills are available in-house. Your inbound marketing and marketing automation depend heavily on an attractively, intuitively designed site that downloads quickly and operates efficiently. Your website designer may also provide technical support services that keep your site up and running, as noted above.
  • Virtual assistance: Virtual assistants provide administrative support services for tasks that may include scheduling appointments, managing emails, making travel arrangements and more–allowing small business owners to focus on running their business instead of getting bogged down with mundane tasks. Many virtual assistants offer specialist digital and social media marketing services, helping you attract new customers and some offer specialized accounting and bookkeeping services.

Thanks for reading,

Kim

Image: Stephen Root as Milton Waddams in Office Space (1999), directed by Mike Judge

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Fight Back Against Recession

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Economists and other thought leaders predict that 2023 will be a recession year and if the prediction holds, many Freelancers will see a decrease in sales revenues. Diminished revenue has the potential to bring on many unpleasant outcomes, among them the imperative to reconfigure how you can best allocate your shrinking funds. Belt-tightening isn’t fun, but do it right and you might survive or even, eventually, thrive. Take these three actions:

  1. Defend cash reserves
  2. Identify most profitable business activities
  3. Guarantee the optimal delivery of products and services

Conserve cash

You may not have a large amount of cash on hand in your business, but make a point to locate where you might find revenue that hasn’t been tapped. The first place Freelancers should investigate is the Accounts Receivable file. Rethink your strategy to collect unpaid AR and better still, start planning for AR when discussing the agreement with clients you’re about to work with. Request up-front money before you start project work on jobs that bill for less than $100—10% – 20% in advance is reasonable. Second, tie interim payments to project milestones where possible. Institute policies to avoid leaving more than 50% of the fee payable when project deliverables are handed over. The best defense is a good offense.

In the present tense, identify outstanding invoices and tactfully, persistently, pursue payment. Follow-up with clients who might be struggling to pay invoices and negotiate a payment plan if possible. Do whatever you can to ensure that all money owed to you will be paid as soon as possible (FYI, I’m negotiating right now with a client who should have no problem paying, but is 60 days late). Bring in the money and hold on to it—spend only on activities with demonstrated potential to increase revenue.

Double down on money makers

Going into a recession is a great time to do an audit and verify the most profitable parts of your business. When the economy becomes favorable again, you’ll be even better set up for success. Once you’re sure of the money-makers, do what you can to expand billable hours of those assignments. If you can scrape together a marketing budget, here is where you spend.

Marketing sometimes seems counterintuitive when you have less available revenue but in most cases, you can’t make money unless you spend money. What you must do is limit spending to activities that positively impact revenue generation. It could be that you buy a software program that makes it faster to generate and send client invoices. You might also invest in making credit card payments available and thereby make it easier for clients who can’t afford to write you a check can nevertheless use credit to pay your outstanding invoice.

There are also the more immediately recognizable marketing activities, among them selectively attending meetings and conferences where you might encounter prospects who may become clients and advertising, print or on-line, in publications that are read and respected by your target audience for your rainmaking projects.

All about deliverables, client retention, referrals

Happy customers create more business. Repeat and referral business is extremely important in a recession. Ensuring that your clients are happy is vital in any economy but especially in a recession. Creating glowing online reviews, testimonials and good word-of-mouth are essential to growing your revenue when times are tough (and even when there’s lots of money rolling around).

Sometimes when the economy changes, so do your client’s needs. Extract this opportunity, hidden in adversity, to learn more about your clients and what they feel they need now to ensure the survival of their organizations. Now is the time to talk to your clients and discover any changes in what they consider the pain points and priorities. Once again, it will be demonstrated that when you are attuned to the needs of your clients that knowledge can lead to more more active clients, more referrals and more revenue and profit.

Thanks for reading,

Kim

Image: © Keystone/Hulton Archive/Getty Images. Protesting the rise of food prices in 1973.

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Course Correction: Tacking Through Headwinds

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When you decide to become a Freelance consultant or business owner, your mission is to build and launch a successful and sustainable entity. To that end, there will be Important Things you must do very well and a corresponding list of Big Mistakes you must avoid and summarily correct if you fall into the trap. Our old friend the SWOT Analysis (Strengths, Weaknesses, Opportunities & Threats) reminds us that when leading a venture there’s always something to analyze, fix, capitalize on, or avoid. Below is a list of usual suspects that can tank a business. Be on guard!

Failure to understand the customer

Apologies for hammering this topic in nearly every post, but it’s impossible to overstate the fact. If you plan to become self-employed or open a business (and you must make a plan, even if it’s an outline scrawled on a cocktail napkin), you must be assured that you:

1). Have an accurate description and understanding of the customer segments you expect to buy from you and

2). Verify that your choice of prospective customers has a need, if not compelling reasons, to buy your product or service at a volume that will sustain your venture. In short, you’ll need a critical mass of paying customers.

Failure to research the marketplace

First thing you do is research the chosen industry and confirm that your sector is on an upward slope because under no circumstances do you want to enter a shrinking market. Also, search for announcements of new products and services that will soon be released, to verify that a competitor will not make your product or service obsolete. Furthermore, search for updates that may reveal potential new customer groups for you, or shifting demand for current products and services. In other words, customer loyalty can wax or wane, new iterations and uses of what’s available can develop and nothing is static and forever.

Failure to choose a good business model

Create your roadmap for customer acquisition and achieving profitability. Included in your assessment will be how you’ll source, create and bring your goods or services to customers. Decide also the payment methods you’ll accept and when payment will be made (billing after the product or service has been delivered to the customer or payment when the goods are ordered?).

Failure to develop a coherent marketing strategy

It will be tremendously helpful to create a multi-prong marketing strategy in which you’ll outline basic promotional goals for what you’re selling—-sales/marketing funnel, newsletter, blog, social media, branding, PR, website messages. All paths must travel in the same direction. All elements , text and images, must advance and support the same story.

Failure to create an effective customer acquisition and retention strategy

Identifying the customer groups that you’ve confirmed are a natural fit for your products and services is only half the story (sorry!). You then need a plan to reach out to them— that’s what your marketing and brand appeal exist to do. The value of your products and services, plus the efficiency of how you deliver to the customer, along with your diligent quality control, customer service and post-sale support impact customer retention and referrals.

Failure to anticipate required cash-flow

Posts on March 15 and April 19 addressed pricing and cash-flow, as regular readers will recall. The objective is to lay the groundwork for generating sufficient revenue to pay expenses, pay employees, pay yourself and reinvest in the business. Timing is everything and money must be available when you need it most. If there are gaps, corrective action should be taken immediately.

If invoicing is how you generate revenue, take steps to invoice on time. Insert on every invoice a polite phrase to indicate that payment is due upon its receipt. Give yourself an infusion of cash by asking for 15-20 % up front on projects where you anticipate billing $1000 or more. Worse case scenario, you’ll have to take an under-the radar unglamorous part-time job or get lucky and score an adjunct teaching gig at a local college or business incubator (BTW, I’ve done all of the above).

Failure to price appropriately

Pricing is an integral component of the marketing strategy but it often gets treated as an afterthought. Your revenue projections will underperform if you don’t price appropriately. Prices must support profitability as well as be perceived as reasonable to prospective customers. They must reflect your brand, whether luxury/premium, mid-market or discount. Think carefully about the message that your prices send to prospective customers.

Thanks for reading,

Kim

Photograph: On the rocks, aftermath of a nor’easter at Lewis Wharf in Boston Harbor, October 17, 2019

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Is It Time for a Price Increase?

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We’re here to talk about pricing today, a favorite subject of mine, but I admit the process is tricky. Pricing is more important than you might think because if you don’t get it right you either won’t sell much, because prospects and customers feel you’re too expensive, or you’ll sell but won’t make as much money as you could, because you’ve priced too low. Pricing B2B services can be a challenge. You can’t walk into a couple of stores or check on line and comparison shop your competitors, so competition-based pricing doesn’t work. Value-based pricing is the best option for B2B services.

So that you can at least maintain, if not increase, profitability in these unstable times, business leaders and owners would be wise to evaluate the pricing of their products and services and make adjustments when necessary. Revenue and profit are tied to more than sales volume. The most important driver of sales revenue, after ensuring that production or acquisition costs are covered by the price, is the value that clients assign to your products and services. I suppose that’s another compelling reason why B2B services are most successfully priced according to the value and ROI they bring to your customers.

Conducting basic market research will help you discover or confirm the purpose, must-haves, priorities and ROI that drive the confidence in and sales of your products and services. As usual, knowing the customer means everything. Whether you get them on the phone or take them out to lunch, speak to three or four of your best clients to determine which outcomes and benefits, tangible and intangible, matter most. You want to obtain insight into how your products or services bring ROI to clients. Once you understand what your offerings enable clients to do, align your price with the value they bring. Furthermore, include in your marketing messages those benefits that clients with whom you’ve spoken indicated are the most highly prized.

When announcing price increases, it may be useful to explain your increased costs and how long it’s been since your prices have been adjusted. Don’t shy away from highlighting how much your clients have raised their prices. For clients who may be struggling, consider “grandfathering” to continue the pricing for the product or service they buy most often. You could also soften the blow of price increases by designing product and service options to accommodate price-sensitive clients. No-frills, economy versions of your offerings may be welcomed by some. Consider also indirect price increases, such as adding surcharges for expedited shipping, longer payment terms, rush orders and for performing small projects.

Charging one price for your products and services is, in fact, limiting for both you and your clients. The buying decision may be simpler, but it leaves no room for clients to upgrade and you to bring in additional revenue from upselling.

Thanks for reading,

Kim

Image: The banker from the board game Monopoly ™, which was patented by Parker Brothers in 1935.

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Talking Tax Year 2021

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The new year is just one month old and it’s already time to think about filing taxes. Ugh! Then again business owners, including Freelance consultants, must usually file quarterly taxes so we often have our minds on the subject. As we know, planning is key (for all of life and business!) and the purpose of this post is to support your tax planning.

Let’s start with the question of whether or not you’ll file a 2021 tax return. If any one client paid you at least $400 in total during the year, you must file a tax return. Why is $400 the filing trigger point and not $600, the well-known earnings threshold for paying income tax?Because Freelancers are required to pay self-employment taxes in addition to regular income tax on the revenue you generate (minus business expenses and a few other deductions). While you may not owe income tax on the $500 project you billed, you’ll pay self-employment taxes on that amount.

The Internal Revenue Service compels Freelancers to file taxes like a business owner. In addition to the standard income tax based on your tax bracket and filing status, you are obliged to pay the self-employment tax of 15.3%, which constitutes the Social Security and Medicare taxes that everyone who works must pay, and also pay the half that’s covered by a traditional employer (this requirement does not apply to Freelancers who have U. S. clients but are not U.S. citizens and do not reside in the U.S.).

Clients pay to you the entire amount of the agreed-upon project fee and do not withhold taxes. Total earnings received from each client are reported on a Form 1099-NEC that is sent to you by each client no later than January 31. Freelancers pay the self-employment tax directly to the IRS, on your own.

Now you probably have business expenses to factor into your revenue earned, so if you’re a part-time, occasional Freelance moonlighter, you might not owe either income or self-employment taxes. File Schedule C or Schedule C-EZ to calculate and report business expenses to your state’s Department of Revenue and the IRS.

Freelancers and other business owners who expect to owe $1000 in taxes in a given year must also pay an estimated quarterly tax because, again, no portion of Freelance income is withheld by clients and applied to taxes that are presumably due. IRS Form 1040-ES will help you calculate how much you’ll owe in estimated taxes each quarter. It’s beneficial to you when your estimated quarterly tax is close to reality because if you underpay, you’ll owe the IRS the remaining balance when you file the annual tax return (by April 15). Habitual underpayment of quarterly taxes can cause you to be penalized and compelled to pay a fine, along with taxes owed.

Finally, heads up if you use services such as PayPal or Square to accept invoice or other client payments. Be advised that new tax reporting changes affecting these platforms are now in effect. A new tax ruling gives the IRS information on income that Freelancers and other small businesses proprietors receive via transactions on payment applications.

As of January 1, 2022, businesses that receive payment of $600 or more per year for goods and services purchased through payment apps such as Venmo, Square, PayPal and Cash App will receive Form 1099-K so that the IRS can be assured that you will include those payments in your taxable revenue. In an effort to reduce the amount of unreported taxable income flowing through these payment platforms, the IRS now requires payment app businesses to report on Form 1099-K each of their user’s business transactions (defined as a payment for a good or service). The threshold for reporting was previously 200 transactions per year amounting to a combined total gross payments of at least $20,000.

By lowering the reporting threshold, peer-to-peer payment applications must now report income if a user earns more than $600 from the sale of goods or services in one year. This change applies only to “income received from goods and services,” meaning it does not apply to gifts and other personal transactions, such as reimbursing friends and relatives for rent, dinner, or other social expenses.

If you use payment apps for non-business transactions and you receive a 1099–K. from one of these platforms, examine it carefully and be prepared to clarify your activities with the IRS. There may be a chance that some of your transactions will be reported twice or somehow inaccurately, since these reporting requirements are new. Check carefully the 1099–Ks you receive from your payment apps as well as the statements you receive from clients who use the apps to pay you. Again, be prepared to explain to the IRS that the two 1099-Ks are for the same transaction.

Let’s finish up with a peek at important 2022 tax filing dates to remember:

· January 31, 2022 – Deadline for clients to send Form 1099–NEC to Freelance consultants

· March 15, 2022 – Deadline for partnership tax returns (and LLCs taxed as a partnership) and S-corporation tax returns

· April 18, 2022 – Deadline for 2022 Q1 estimated tax payments. It’s also the deadline for C-corporation, sole proprietor (businesses you report on a schedule C) and individual tax returns. If you file an extension for the deadline, the Individual Tax Return Extension Form is due on April 18.

· June 15, 2022 – Deadline for 2022 Q2 estimated tax payments

· September 15, 2022 – Deadline for 2022 Q3 estimated tax payments

· October 17, 2022 – Deadline for 2021 individual tax returns that received a filing extension

. January 15, 2023 – Deadline for 2022 Q4 estimated tax payments

Thanks for reading,

Kim

Image: Mohamed El Korchi as Matthew, a tax collector who, after a monumental pivot and rebrand, would go on to become a saint, in the Lumo Project, an educational resource designed for anyone interested in the Bible’s four books of the Gospel.

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New Year’s Resolutions for 2022

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Happy New Year! I’m psyched to welcome you to 2022 and thank you for stopping by to read. There can be no party without you and together, we are going to make this a very good year. Because we’re at the top of the year, capodanno, as the Italians so eloquently say, I’ve decided to revive my New Year’s Resolutions tradition, something I haven’t done since January 2019. Considering what the entire world has been slogging through since 2020, you may appreciate some inspiration to get yourself in racing form.

Join a business group

Freelancers and other business leaders need community. It can be lonely at the top. You need a way to meet and interact with peers, whether or not they become your besties. Business organizations and professional associations provide forums where Freelancers and (small or mid-size) business owners can talk to colleagues who understand your challenges and motivations. Along the way, you’ll build personal connections and you may also find your way to business opportunities.

If you’re not sure where to start, visit the website of your local chamber of commerce; the chambers are great resources for B2B, B2C and B2G facing business owners and leaders. Another useful organization is The Freelancers Union, an online national group that is a good resource for all types of information, from professional development workshops designed for self-employed professionals to medical, dental and other types of insurance coverage. https://www.freelancersunion.org/

Analyze your website and social media data

Fully leveraging the potential of the digital presence of your company is unquestionably a must. Whether selling to B2B, B2C, or B2G clients, the winners are those who are guided by actionable data when making decisions and developing business strategies. If you haven’t done so already investigate Google Analytics, a free and powerful online tool that helps you discover the right approach to the customer journey and customer experience that your company offers, supplies e-commerce, call-to-action and landing page insights, plus more. https://analytics.withgoogle.com/?utm_source=google-growth&utm_medium=cpc&utm_campaign=2019-q4-amer-all-gafree-analytics&utm_content=analytics&gclid=EAIaIQobChMIsILp4eCW9QIVDovICh2FKAT0EAAYASAAEgJPJPD_BwE&gclsrc=aw.ds
If you can budget about $25-$50/month, invest in a social media analytics service such as Zoho Social, Hootsuite, Buffer Analyze, or HubSpot to further enhance and refine your strategies and campaigns and measure ROI.

Become a better leader

There are multiple paths that one might take to developing and enhancing leadership skills and it can begin with reading. Reading one or more leadership themed books each year will open your mind and make you rethink your usual approaches to problem-solving, decision-making, negotiation and communication, for example. I’m a regular reader of the Corner Office column that appears in the Sunday New York Times.

You may be inspired by this tale of entrepreneurship The Unfair Advantage (2020) by Ash Ali and Hasan Kubba https://www.goodreads.com/en/book/show/50714359-the-unfair-advantage

You may be shocked but intrigued by this tale of commodities trading The World for Sale: Money, Power and the Traders (2020) by Javier Blas and Jack Farchy. https://www.goodreads.com/en/book/show/52199304-the-world-for-sale

When you join a business or professional group, you’re also likely to be introduced to leadership roles in the group (on the membership committee, for example). The chambers and also Rotary Clubs can introduce you to local not- for-profit organization leaders, who can show you how you might contribute your time and talent to a philanthropic cause that resonates and further expand your network, enhance your brand and maybe add to your skill set as well.

Prioritize revenue generating activities

Decide which of your revenue-generating activities could pay off if you plan well— then follow through and execute! Depending on your business and target clients, it could be email marketing outreach to potential prospects, attending certain conferences or trade shows, sending hard copy direct mail appeals, or running FaceBook ads. Once you know what your revenue-generating strategy will be, calculate about how much time you’ll need each week or month to gain traction and meet your financial goal. Then, get to work.

Communicate with clients

Staying in contact with clients throughout the year is good business, even when you reach out to those you haven’t worked with for a few years. Through your outreach, you remind clients past and present that 1.) you’re still in business and 2.) you may be able to help them with achieve a goal or solve a problem. A few years ago, a study by the uber-consulting firm Bain & Company confirmed what decades of anecdotal evidence shows —- that it’s easier to keep an existing customer than to find a new one.

So send a copy of your newsletter, blog, case study or white paper to clients, attached to a quick and friendly email that mentions a couple of reasons why they’ll find the read worthwhile. Also update clients when you give a talk, moderate a panel, or appear on a podcast. Pick up the phone and invite your most important clients to lunch.

Delegate or outsource

Delegating, or outsourcing if you work alone or with a small team, is essential for you to be able to have time to yourself and think about how to find innovative ways to expand your business. If you want your business to thrive and grow, you need to start trusting the people on your team, or identify other talented and trustworthy Freelancers, to take over certain tasks.

Upgrade your skills

The world keeps turning, expectations evolve and what we need to know to maintain the trust and respect of current and future clients shifts with the times, along with how we package and deliver the services we offer. What expertise do you need to own to better reach or more effectively serve your clients? What do you need to know to more efficiently run your business?

Help yourself to figure things out by reading articles that address your industry and niche within it—-what new technologies are gaining traction or what are new uses of existing technologies? What are the thought leaders in your industry and niche predicting? What are your clients doing to position themselves for future demands?

With that information in hand, you’ll understand how to upgrade your skill set. Maybe you’ll finally become truly proficient in using Excel, or learn to become more comfortable giving virtual presentations.

Nurture your health

Unless you’re up against a big project deadline, structure your time to allow yourself to have a day or two off once a week. Burnout is bad for business. Allow yourself to sleep the number of hours your body needs (adults usually need 7-9 hours daily). Eat a balanced diet that contains the basic food groups. Give yourself a daily intake of water that approximately equals one-half of your body weight in ounces. Participate in moderate to vigorous exercise at least three hours each week. Maintain your social connections by staying in touch with friends and family.

Thanks for reading,

Kim

Image: © William Stephen. Thoroughbreds racing at the Saratoga Race Course in Saratoga Springs, NY

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Cash-Flow Cures

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Cash-flow is the beating heart of every for-profit (and also not-for-profit) enterprise and it is imperative that business owners keep a finger on the pulse of revenues that flow in and expenses that flow out of the coffers and constantly monitor the venture’s fiscal health. Your ability to pay recurring bills, invest in the business and maintain operations depend on it.

There are several Key Performance Indicator metrics that reveal the strength (or weakness) of aspects of the business—the number of active clients, the number of subscribers to your blog and/or newsletter, the conversion rate of sales leads and the percentage of clients who give you repeat business, for example, and each tells an important story. But in the end it’s about the money, how much comes into the business (accounts receivable and whatever additional income) and how much goes out (accounts payable, plus interest payments and taxes).

Follow your cash-flow

If you send only a few invoices each month and generate them yourself, why not create an Excel spreadsheet and enter your receivables and payables data there, at no charge? You can monitor invoices (accounts receivable) and update as payments are received. Each month, you can easily calculate revenue. Monthly bank and credit card statements, PayPal emails and updates from online payments, made or received, will verify your accounts payable activity and confirm receiveables that are paid.

You can record it all in Excel (and label it your Profit & Lost Statement) and understand whether you’re making money, breaking even, or losing money when you view the bottom line. With that knowledge, you can create strategies to capitalize on your financial situation or correct it.

If you’d rather pay for an invoicing and accounting service, there are several good options available, including Fresh Books, HoneyBook, Invoice2Go, Oracle’s NetSuite, QuickBooks, VCita, ZarMoney and Zoho Books. The platforms make it easier to send invoices, reconcile accounts, generate reports , track time spent on project work and more.

Evaluate expenses

Examine your company’s recurring monthly, quarterly, or annual expenses. Can you trim the cost of utilities, renegotiate commercial space rent or insurance payments? Why not terminate premium services or other subscriptions that don’t deliver as you anticipated? Ditto for organization memberships that you can’t find the time to utilize.

The work from home phenomenon should help you lower your rent for office or other commercial space. If your landlord balks at dropping the price, consider asking for more space, if you’ll find it helpful, or ask for perks such as a discounted maintenance fee.

If you have a history of paying bills on time, call your insurance, credit card and loan companies and ask for a lower interest or premium rate.

Demand a deposit

When a project fee reaches a mid 4-figure sum, request a 10% – 20% up-front payment at the contract signing. Link subsequent payments to the completion of project milestones. Aim to leave no more than 25% of the fee payable at project completion. In other words, help your monthly cash-flow and revenue by scheduling most payments before the client has what s/he wants. If the client is unethical and “forgets” to make the final payment, you’ll have most of the money in your pocket.

Invoice on time

The thing about being a Freelance consultant is that unless you are a big-league player, invoicing, proposal preparation and other administrative tasks are done on your time. Remember that when negotiating project fees and try to roll it in.

I find invoicing to be a chore, but that’s how I get paid. Within two weeks of the completion of whatever client work you’ve done, train yourself to invoice. On your invoice, state that payment is due upon its receipt.

No-problem payments

If you sell products or provide services at your clients’ homes or offices, enable on-the-spot invoice payments with mobile apps that use your smartphone or tablet to accept credit or debit cards. Investigate mobile payment platforms such as Helcim, Payment Depot, Square, Stax and Stripe.

Credit cushion

A business line of credit is a good insurance policy against cash-flow droughts. Talk to the manager at your bank and s/he will be happy to discuss options with you. Most likely, you’ll receive a business credit card, which will be very helpful as you track business expenses, whether you take a prospect out to breakfast, attend a professional development or networking event, or buy a new computer.

As well, if your credit score is good you may be able to more quickly collect receivables from good clients who are, unfortunately, slow payers, by applying for a NOWaccount. Both your company and the client’s company must be approved. You invoice the client as usual and NOWaccount pays you within 30 days, minus a fee. Client checks are made out to you, but mailed to a post office box belonging to NOWaccount. If you have a good client who is a 60 + day payer, you can be well-served with this option.

Thanks for reading,

Kim

Image: Leonardo DiCaprio in Catch Me if You Can (2002) directed by Stephen Spielberg