I recently received an e-mail from a colleague of mine here in Austin, Texas who was looking for some business advice. We both started our companies at the same time and we used to meet at the playground while our toddlers would play and we would brainstorm, talk about marketing ideas and share our wins and failures. Now, our "toddlers" are snaggle toothed 8 year olds. My how time flies. Anyway, I digress...
After I received her e-mail and sent my response, she said I should turn the response into a blog entry or article. So, here you have it. (Some names have been changed to protect the innocent.) :-)
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Monday, February 22, 2010
Dear Ashley,
I know when I met with you several months back, you mentioned I should probably raise my rates. I raised them just 10% and now, I'm wondering if I raised them enough. In your honest opinion do you think they need to be higher? Since I just raised my rates a few months ago, should I stay at this awhile and then set a date to raise them? I want to be in line with my market, but not over charge.
I really appreciate your input on this. I know you work with a lot of designers & stagers and you have good feel for what I should be doing.
Thanks for you help,
"Debbie Designer"
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Monday, February 22, 2010
Dear "Debbie Designer",
I wish you could have been at the Real Estate Staging Association Conference where I delivered a course on Pricing Strategies!
A common mistake that many designers make is they set their rates too low and forget to consider that they don't get to charge anyone an hourly rate when they are doing all of those other things involved with running a successful and stable design business (i.e. bookkeeping, training, marketing, driving to and fro, basic business operations.) If you're not charging enough, you'll find that by the time you factor in your fixed expenses, variable expenses, COGS/COS & taxes, your net isn't that much. It's worth REALLY taking the time to see how much you are actually making, vs. how much time you are working. Calculate the # of hours you spent last year on your business. Include the obvious (i.e. meeting with clients, book keeping, etc.) but also factor in commute times, arranging for child care and even the time and money it takes to get dressed up to look like a savvy & stylish designer. Now, look at your bottom line and divide that by the # of hours you worked last year. How much did you truly make an hour last year?
When you see this net hourly rate, it will usually be a rude awakening which will motivate you into raising your rates. Think about the time you spend away from your family and the time you take away from yourself - is it worth it? I'm all for charity work, I just don't think "Mrs. Jones" in her $500,000 home who wants custom draperies but doesn't want to pay our price qualifies for a charity case. Nor does Mr. Jones, who agrees that staging a home increases the perceived value, but doesn't want hire an expert and pay the expert's rate to properly execute a staging. If I'm going to donate my time, it will be for a homeless shelter, Haiti, child advocacy, Humane Society, etc. People who truly need it, NOT MR. OR MRS. JONES! You only have one life and one family. Why whittle it away by charging less than you're worth? Profit is not a bad word or an embarrassing thing and you shouldn't feel guilty about making a profit to earn what you're worth.
With that said, I definitely think you would be justified in a rate hike. If you don't feel comfortable doing it right away, there are lots of ways to raise your rates, without a flat out rate hike:
•¡ Revise the discount structure.
•¡ Change the minimum order size.
•¡ Charge for delivery and special services.
•¡ Invoice for repairs.
•¡ Charge for engineering, installation.
•¡ Charge for overtime on rushed orders.
•¡ Collect interest on overdue accounts.
•¡ Produce less of the lower margin "widgets".
•¡ Write penalty clauses into contracts.
My mission for 2010 is to combat the plague of under-earning in our industry. When I spoke before 250 stagers at the Real Estate Staging Association Conference in January, and asked the room how many felt their net profit at the end of 2009 reflected what they are worth, and how many felt like, "Yeah, that's fair. That's what I should've made." You know how many stood up? 5. I knew it wouldn't be a lot, but was stunned at how few.
It's an epidemic. It's got to stop. If we don't value ourselves and our work, no one else will. We're giving away our most precious commodities -- our time, our talents, ourselves. For what? For the Jones' so they can keep up with the other Jones while we struggle and sacrifice ourselves and our time? And so we can work ourselves into the ground for leftovers? I don't think so!
I won't go into the details, but during my presentation, I walked everyone through a simple exercise involving "Sally the Stager" who charges $50 an hour. At the end of the exercise, we see how Sally actually makes less than $6 an hour if she's charging $50 an hour to her clients. Needless to say, most people left the room vowing to increase their rates as soon as they returned from the conference.
Let me know if you need anything else! You're taking all the right steps and you'll soon reap the rewards! Keep at it & stay focused. You're definitely moving in the right direction.
- Ashley
P.S. Sorry to be so long winded. Can't you tell I'm passionate about this?
P.S.S. If you want to take the Pricing Strategies course online, you can now apply it towards your RESA Pro Designation. Here's the link w/ more info. on RESA-PRO Designation and the classes. (The Pricing Strategies course is under "Business Principles".)
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Tuesday, February 23, 2010
Ashley,
Thanks so much for all of the valuable information and input. Wow...you are passionate about this! Yes...I am going to raise my rates. I think it might be a good idea to roll that increase out with our rebranding so that it all lines up at one time.
I have already felt much better about hourly consultation after raising my rates the first time, and so I know everything you are saying is so true.
I so appreciate all of the great advice and support you have been to me over the years. Please let me know anytime you need a favor back.
"Debbie Designer"
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