The way time interacts with money has always been a point of fascination for me. While I’ve often thought about how to go about buying time with money, recently I’ve been thinking a lot more about buying money with time – and without it.
Time is an input into all productive processes that eventually will be exchanged for money. It might be an initial investment or it might be a unit cost, and your final pricing philosophy should be different depending on which.
If you sell something that requires your time as a unit cost, you should charge more. For instance, if you are a plumber, you’re not charging enough. Virtually everyone who sells their time directly would do better if they doubled their prices. When you have a business, there’s always the inclination to lower your prices because of a universal fear of “losing business.” But here’s the thing: if you’re not losing any business, then almost by definition you’re not charging enough. You should lose business.
Why? Let’s say you charge $20/hour as a freelancer doing whatever it is you do, and at that price your calendar is full – you work 50 hours a week consistently. Cool, you make a thousand bucks a week. Now let’s say you raise your prices to $25/hour and as a result, you lose 20% of your business. Those canceling clients scare you, but… you still make a thousand bucks a week. And you work ten fewer hours. So now you can either just enjoy making the same money in less time, or you can spend the extra ten hours hustling for new clients and make even more money.
(And hey, don’t forget – with every passing month you’re getting more experienced and better at what you do, so those prices should be going up anyway.)
If you double your prices and lose half your business as a result… good! Time is your ultimate bottleneck, not “number of clients.” There will always be a range of available customers at a variety of price ranges, but time is a unit cost for you, then there are only so many you can ever serve. Your goal shouldn’t be to maximize the number of clients, it should be to maximize the total value of your book of business, and that means moving up the hierarchy.
Now, if time isn’t a unit cost for you, you should lower your prices!
The easiest example: if you write a book, then you should probably lower the cost of digital copies. Time was an initial investment, but there’s no per-unit cost in time to sell additional e-reader copies. Your goal is to get the book read, and beyond a certain minimum threshold, everything is profit. So you want to get more copies out there. If lowering the price of your book from $10 to $8 doubles the number of units sold, that’s an incredible move. (Of course, if lowering the book from $10 to $8 doesn’t change the number sold, then don’t – but the point is that there’s a “sweet spot” and it’s probably lower than your initial assessment.)
There are, of course, a bajillion considerations when it comes to determining the final price of any product or service. I don’t mean to reduce all of that here to one simple decision. But I do think this guiding philosophy would help most people evaluate all those other factors more effectively, especially the early entrepreneurs and small business owners out there. If you sell your time, charge more. If you don’t, charge less. Start there, and go make more money!