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Making More Money Per Hour

time_money_balanceBigg success is life on your own terms. Today’s topic really covers two of the five elements of bigg success – time and money.

Specifically, we want to discuss charging for your time. If you’re a consultant, a coach, a freelancer or anyone who bills hourly, how do you determine what an hour is worth?

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One of the biggest reasons small business people don’t reach bigg success is because they don’t charge enough. In fact, in many cases, the business fails for this reason.

So pricing your service is very important. We can think of two primary methods to arrive at a price:

The Market Approach

This is probably the most common way that entrepreneurs arrive at a price. With this method, you simply look at your competition to see how much they’re charging. Then depending on your strategy, you charge the same, a little more or a little less.

The Cost Approach

Here you determine how much you need to charge based on your cost structure and your opportunity costs. By opportunity costs, we mean:

How much could you make working elsewhere?

Add your hard costs to your opportunity cost to arrive at your price per hour.

Limitations

The downside to just using the Cost Approach is that it ignores the market. For instance, your price may be a lot lower than the market but you wouldn’t know it because you haven’t looked at the market. You would be leaving money on the table.

Or it may be a lot higher and the market won’t compensate you what you the amount you need for your time. The result would be a failure that could have been avoided.

The Market Approach also has its limitations. We have a friend who looked at his competitors’ hourly rate to determine how much he should charge. He opened up his shop and started losing a lot of money every month.

He was perplexed, so he did a little more competitive research. He discovered that all of his competitors were losing money as well. Everybody was in a price war; nobody was charging enough to make money.

So he increased his price based on his costs. He lost some customers when he did this but he started making money.

Because of the limitations each method has, we recommend that you use both methods when you’re trying to arrive at a price for your service. Then you’ll have two reference points from which to make decisions.

The Value Equation

Now we want to move to making more money per hour. From the customer’s point-of-view:

Value = (Service x Quality) / Price

From this equation, you can see that there are three ways to increase the value to your customer:

  • decrease your price
  • increase your service level
  • improve your quality

Of course, decreasing the price will very likely hurt you in the long-term. Look at it this way – do you want to work just as hard to make less money? Of course not. Yet a lot of small business people do this first.

So you would prefer to increase the value to your customer by providing a higher level of service or quality.

Let’s focus on service since quality is more up to you. Think about these four D’s:

  • dirty
  • difficult
  • dangerous
  • designed

By designed, we mean customized but we had to have a “d-word”! Dangerous might mean “risky”. However, keep in mind that risk is a matter of perspective. The customer may view something as extremely risky but you know how to manage the risk so it’s not really risky at all for you.

Here’s the key to these four D’s: Find something that your customer
doesn’t want to do, doesn’t know how to do, is afraid to do or just simply can’t do.

When you can do that, your customers will perceive more value for your service. You’ll find it easier to charge a premium. That’s more money per hour. That’s bigg success!
 

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Thanks so much for checking in on us today. Please join us next time when we’ll talk about the downside of education. Until then, here’s to your bigg success!

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Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00422-062309.mp3

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Shape Shifting Leads to Bigg Success

dog-shape-shifting.jpgLast time, we discussed the two ways to create wealth: other people’s money and other people’s labor (i.e. their time and talent). Historically, there’s been more focus on other people’s money as the lever to riches. Now, other people’s labor holds more promise.

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Today’s show extends that concept and is inspired by one of the characters from the HBO hit series, True Blood. Sam Merlotte, who owns the bar, is a shape-shifter. He can change forms – from human to dog and back.

So here’s a little behind the scenes here at Bigg Success: we often get asked how we get ideas for our shows. We’ve been thinking about this shape-shifting thing for some time as a possible fun topic. Then we saw a Harvard article about a new business strategy.

The words “a shape-shifting enterprise” leapt off the page. Voila … a show was born!

Back to the article – it discusses how many large companies are starting to outsource core activities in order to focus resources on solving customer problems.

The author postulates that the future value of companies will be the sum total of all their arrangements. Let’s emphasis that – using words we use more often here at Bigg Success – the future value of businesses, both large and small, will be in the total value of its relationships.

But a key thing to keep in mind is that businesses don’t have relationships; it’s the people in those businesses who have relationships.

You may have a relationship with a customer who has a problem. How many other customers like this customer have the same problem? With how many do you have relationships?

Once you’ve identified that, who in your network can best solve that problem? By becoming the customer’s go-to person (or company) – by delivering the right product or service at the right time for the right price, you’ll create value for your business.

The Harvard article we talked about references a Fortune article about how Chinese and Indian companies are structuring themselves. The answer: they’re positioning themselves to be shape-shifters!

Shape-shifting is a key for us, as entrepreneurs, to survive and thrive in all economic conditions. It extends well beyond outsourcing. It’s an even deeper relationship, which will create more opportunities for small businesses to work with large companies.

To become a shape-shifter:

Watch your operating leverage. The more fixed costs your business has relative to its total costs, the greater your degree of operating leverage. Just like with financial leverage, higher operating leverage can work against us if things take a downturn.

That’s one of the secrets to being able to be a shape-shifter. If you keep your fixed costs low, you can quickly maneuver your organization to take advantage of opportunities that may present themselves.

Seek out strategic alliances. Explore opportunities to collaborate or joint venture with other people and organizations. The do-it-all-yourself mindset is so yesterday. Focus on what you do best and work with people doing what they do best. This is another key to shape-shifting.

Work with anyone and everyone where it’s mutually beneficial, including your competitors. You may find ways to do more together than either of you can do on your own.

Sometimes you may take the lead; sometimes they may take it. You don’t care. You’re shape-shifting yourself to bigg success!

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We thank you so much for reading our post today. Please join us next time when we’re “getting to know you.” Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00417-061609.mp3

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Marketing in Tough Times: Part 2

marketing2 Today on The Bigg Success Show, we continue our conversation with John Jantsch, the Duct Tape Marketer. Last time, John talked about the importance of getting closer to customers and strategic partnerships to build business. Let’s get back to the conversation …

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georgeJohn, one of the businesses I used to own was a plumbing company. In that business, I learned that many times there are ways to work with competitors – especially if they aren’t direct competition. Even within an industry, people may have specialties and you may find people that you can partner with that are better at something than you are.

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johnThe way to really look at that is, “How can you become more valuable to your customer?” Look at it that way as opposed to, “Who can I go to who will refer business me to me?” That’s the mistake that a lot of people make. They reach out to people and say, “Hey, why don’t you send me some business?” And even though they may be capable of doing so, what’s the motivation in that? If the motivation can be, “How can I help you grow your business? How can I provide more value to my customers?” Building a strong network around everything that your customers might need, with you being the go-to person to recommend other people to them, is a great marketing and business strategy. Your customers will become much more loyal if they can see you as somebody who cares about their success as opposed to somebody who is just there to sell them something.

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marylynnIt’s all about being real – now more than ever. Going back to what’s been going on in 2008, some of the big guys have fallen and so has trust. People want to feel like they can rely on you.

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johnRight. In fact, my book starts out with my definition of marketing for the small business: finding someone who has a need and getting them to know, like, and trust you. That’s the real business that every small business is in. Well, frankly any business, but certainly the small business who can’t “buy” know, like and trust. If you keep that as the focus, it becomes the filter for every decision that you make that has a customer impact in your business.

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georgeIt seems to me, John, that you’re saying we need to focus on the relationships and not so much on the revenue. The revenue will come.

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johnI certainly believe that. I’m the first to acknowledge that sometimes you have to put food on the table. There is a lot of pressure to actually make the sale. But long-term, the companies that will survive this economic storm will focus on adding value, differentiating, and building a brand that can be trusted. In some cases, these companies won’t experience any downturn and may even find it to be an opportunity. Because people who haven’t been doing things right – not treating people very well, not doing good work, but the phone keeps ringing because people need stuff done – will be the first to go. If you’re in there doing things right in good times and bad, a shakeout in your industry may be an opportunity.

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We’re so grateful that you took time to read our post today. Join us next time when we wrap up our conversation with John. You’ll hear about the one thing you have to embrace to keep your business from being left behind. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00309-011509.mp3

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The Entrepreneurial Roller Coaster Ride

When you own your own business, you have your highs and you have your lows. And it seems like you rarely have any in-betweens.

George said  …
I never talked about this for years. I thought it was just me. Then I got up the nerve and mentioned it to my sister, who also owns businesses.

She said she knew exactly what I was talking about! So that encouraged me to ask other business owners about it. So far, every single person I’ve ever talked to about this knows exactly what it means. You can see it on their face as soon as you bring it up.

But it’s something I think a lot of entrepreneurs don’t talk about.

Mary-Lynn added  …
With Bigg Success, I’m experiencing business ownership for the first time. And I feel like I’m on a roller coaster. There are days where I feel exhilaration from the ride and there are days when I feel sheer terror and want to get off the ride.

Entrepreneurial terror

If you’ve never experienced it, count yourself lucky, but most people in business have.

You can feel terrified at times even with a job. You may fear you’re going to lose yours when you see other people’s jobs getting cut. But it’s still different for business owners.

George …
I remember one of the guest speakers for my class who talked about the number of mouths he had to feed now. A lot of the most successful business owners I know take personal responsibility for their people. They don’t look at just putting bread on their table; they worry about their employees as well.

That can keep you up at night!

Inc. published an article (way back in February 1987) called Entrepreneurial Terror. A portion of it has been republished on Wachovia’s Small Business site.

It was written by Wilson Harrell, a serial entrepreneur and author of For Entrepreneurs Only. He said:

“… the ability to handle terror, and to live with it, is the single most important
– and, yes, necessary – ingredient of entrepreneurial success.”

This company doesn’t love misery

He says that you shouldn’t share your lows with your friends and loved ones, because you’ll just pass the worry on to them. Unless they’re your partner in business.

He adds that you should always share your highs, though.

How highs turn to lows

The way you spend your time and money when you’re on a high often has a lot to do with how low you go. Let’s look at two examples:

  • Too busy for marketing
    When you’re so busy, you may even be running at capacity, and you know your business couldn’t crank out any more volume no matter how much you wanted to. So you slow down – or even stop – your marketing efforts.

    George …
    I’ve done this! It’s easy to do – there’s no time! But that insures the next down cycle because you’re not doing those things that you did to get to the up cycle.

  • Being careless with money
    A lot of times cash flow is at its peak during an up cycle. That’s part of the reason you’re on an emotional high. So you make that major expenditure. Or you add to your overhead. The next thing you know you’re on a low because business and cash flow have slowed down and you have little or no cash reserves.

You may not be able to avoid the highs and lows. What you can do is conduct business so that your lows are higher … and your highs are higher!

It may not feel any different, but you know it is. You’re reaching ever higher levels of success! Now that’s bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Keep Your Job Or Buy A Franchise?

Bigg Challenge
Ellen e-mailed us because she and her husband are considering buying a franchise. Currently, she’s the #2 executive at a small business she’s worked at for years. She has two questions:

  • What franchise should she buy?
  • Will it pay off within ten years, because she plans to retire then?

Bigg Advice
Obviously, this is a very personal decision, so only you can decide what franchise to buy. We can, however, give you some guidelines.

What’s your expertise? What are your interests? Where’s the opportunity? Match these up when looking for your franchise.

How to find your franchise

Check out How To Buy A Franchise to learn more about the International Franchise Association. This industry group also provides some fantastic resources for people like you. In the article, you’ll see our review of their exhaustive, step-by-step guide to buying a franchise. The only thing we don’t like about it is that we didn’t write it!

They also have a listing of franchises, but in our opinion, it’s not as user-friendly as the next great resource.

You’ve probably heard of the Fortune 500. Entrepreneur publishes a similar list called the Franchise 500 every year. You can look up franchises by category – restaurants, business services, and just about any other category you can imagine.

They also have lists of the top new franchises, the lowest cost franchises, top home-based franchises, fastest growing franchises, and more. We definitely recommend that you check it out.

Making it pay
Buying a franchise, as with any business, comes with uncertainty. You have to take chances to succeed. However, you can and should reduce your risk to a level you can tolerate. You’ve heard us say this before – successful entrepreneurs are very adept at that.

Use the resources we mentioned above. Do your homework. Build your projections, but remember they are just SWAG.

SWAG, in this sense, has nothing to do with the Oscar presenters! It is an acronym for scientific, wild-assed guesses! So make sure you build some “fudge” into your guesstimates.

Is there another option?
You’ve painted an either / or picture – you either keep your job or you buy a franchise. We wonder if there are other alternatives.

You mentioned your husband, but we don’t really know what his situation is. Could he run the business?

You could also hire someone to run the franchise for you. Find a way to align their interest with yours. This could range from sharing profits to an actual ownership stake.

Obviously, if you choose this last option, you’ll have to accept a lower upside. However, your downside is a lot less, too.

If either of these works, you can keep your job AND buy a franchise!

Thanks, Ellen for sharing your bigg challenge! We wish you bigg success, whatever you decide!

What’s your bigg challenge? E-mail it to us at bigginfo@biggsuccess.com!

Our bigg quote today is over 2,000 years old. Seneca, the Roman philosopher, said:

“It's not because things are difficult that we dare not venture.
It's because we dare not venture that they are difficult.”

You have to look at the downside, but if you spend too much time focusing on that, you’ll never enjoy the upside.

Next time, we’ll discuss a recent study that shows that happiness is overrated. Until then, here’s to your bigg success!

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