It was 2017.
A new client had a problem with her practice.
She was working about as many hours as she wanted, but was having a hard time making ends meet, let alone getting ahead.
One simple bit of coaching I gave her would make a huge difference, but she took months before adopting it.
The Simple and Easy Way to Double Profits and 10x Assets
Almost all my clients have the same issue.
Undervaluing their services and the difference they make.
If you ask them if what they do makes a huge difference for their clients, they’d say yes, but what they charge for those services doesn't reflect that value.
It’s about setting prices like a business, not giving in to fear, imposter syndrome, or the notion that you’re responsible for helping everyone, to the detriment of your family, and even your clients.
The Impact of Setting Your Rates Right
Let’s look at two scenarios. One where your profit margin is minimal, the other where it’s relatively high.
Scenario 1 Assumptions: Low Profit Margin
Here are the assumptions:
- Hourly rate $125
- Annual hours billed 1000 (about 20 hours/week)
- Annual revenue $125k
- Annual business expenses $100k
- Annual profit (pre-tax) $25k (20% profit margin)
- Savings rate 5% ($1.25k/year, if you can even afford that given your low income)
Scenario 2 Assumptions: High Profit Margin
Here are the assumptions for this scenario:
- Hourly rate $80
- Annual hours billed 1000 (about 20 hours/week)
- Annual revenue $80k
- Annual business expenses $30k
- Annual profit (pre-tax) $50k (62.5% profit margin)
- Savings rate 6% ($3k/year)
Scenario 1 After Modest Rate Increase
If you were my client, my initial priority would be to figure out why your expenses are so high. However, for our purposes here, let’s assume you can’t reduce them.
What you can do is increase your rates to $150/hour (and we’ll assume this increases costs by $1k, e.g., due to higher merchant card service fees). With no additional hours, your revenue increases to $150k, and with $101k in expenses, your profits nearly double to $49k.
Assigning half the new profits to savings and investments, you’re setting aside ~11x as much as before, which grows your assets more than 10x faster.
Scenario 2 After Significant Rate Increase
Since your rate was just $80/hour, you decide to increase it to a more reasonable $150/hour.
With the same hours worked, your income is now $150k. Your expenses are almost unchanged, with just $2k increase in your annual credit card servicer fees, and possibly an extra $5k in marketing spend. Your annual profits go up by $63k, more than doubling your previous profits.
You divert 2/3 of the new profits, ~$31.5k, to savings and investments, using the remaining 1/3 to modestly increase your standard of living. This brings your savings amount to $32.5k, more than 10x your previous savings rate, which increases your assets 10x faster.
All this while increasing your standard of living by nearly 50%!
If It’s So Simple, Why the Resistance?
Going back to my client, it took her months to accept and implement my coaching. Other clients were similar.
The answer comes in different flavors, but here are the main components:
- Impostor syndrome: “Who am I to charge so much?”
- Fear: “My clients won’t be willing to pay so much more!”
- Empathy: “Lots of potential clients can’t afford such high rates!”
Reframing the Issue
Here’s how I reframe things for my clients to help them get past the emotional roadblocks.
Believe your clients!
They’re paying for your services from their hard-earned cash. Are they fools? Of course not. If you made no difference, they’d go elsewhere. The fact they keep coming back proves you’re no impostor!
The unavoidable truth is that some (perhaps many) clients willing and able to pay $80/hour will not be willing and able to pay $150. However, some will, and others will come who are willing to pay more for the difference you make.
You likely need to change how you find and reach prospective clients, rethink your ideal client avatar, update and upgrade your website, and update and increase your marketing.
All that is worth it when you think about the impacts of 2x your take-home income and 10x the assets you build for future needs.
That client I mentioned? The final trigger that allowed her to make the leap was when I asked her if she’d take money out of her teenage son’s college fund and give it to her clients.
“Of course not! Never!” was her indignant response.
I replied, “Guess what, you already are.”
That’s all she needed to hear.
The important thing is to consider why you’re doing what you do, and realizing this is something worth overcoming your emotional roadblocks.
This is a tough one, especially for therapists, because empathy is an intrinsic attribute of a good therapist.
What made the difference here was asking my client the following. “If you could do all your work pro bono, could you help everyone who needs your help?” Of course not. You have only so many hours in the day, and so many days in the year.
“If you could do all your sessions at $10/hour, could everyone who needs your help afford you?” Again, no. No matter how much or how little you charge, if it’s not free some clients won’t be able to afford you.
So, if you can’t help everyone, no matter what, and even charging $10/hour not everyone can afford you, realize that you can’t provide a solution to everyone.
In fact, doing that isn’t even your responsibility.
Worse yet, if you try too hard, you’ll take on more than you can do well for very long. The result will be (a) you won’t be at your best for each client each time you meet, (b) and you’ll burn out, leaving your clients without your help.
Instead, charge what you need to, and consider offering discounts to a few clients who really need it, rather than discounting for everyone (including clients who are far better off than you and your family!).
The Bottom Line
If your profit margin is low, increasing your rates modestly can double your profits and 10x your assets.
If your margin is high, you’d need to increase your rates much more to achieve the same outcome.
Either way, if you’re like almost all my clients, you’re under-charging and need to rethink things. Charging what you’re worth can be emotionally challenging, if not outright frightening. You will need to overcome one or more emotional roadblocks.
But it’s worth it. It can potentially transform your family’s future, as well as your ability to help clients in an optimal and sustainable way.
Don’t you owe it to yourself and to them?
This article is intended for informational purposes only, and should not be considered financial, business, or legal advice. You should consult a relevant professional before making any major decisions.