Entrepreneurs Under-Charge

By John Malmo

http://stream.publicbroadcasting.net/production/mp3/wkno/local-wkno-897396.mp3

03-17-2010: Entrepreneurs Under-Charge, by John Malmo.

Memphis, TN – A tough issue for many entrepreneurs is knowing how much to charge. Poor pricing often leads to entrepreneurs working for wages without accumulating any wealth. There usually are two problems: in a service business, often the owner doesn't know how much a job costs because employees don't keep daily time sheets. Then, at billing time, no one can remember how much time was spent on a job, so the owner can't know what to charge to make a profit. Generally, he's afraid of charging too much.

I ran into an example recently. A ten-year-old service business. The owner had grown from zero to a million and a half annual sales. Good little company; dominates its category. Yet the owner makes only a salary and a few perks, such as auto and life insurance. A total of less than he'd have to pay to replace himself. Then the business essentially breaks even. No time sheets; no accurate costing; no profit.

When entrepreneurs aren't sure, they tend to undercharge. If he added 12% to every job, how many would he lose? Probably none, he said. First: know what every job costs. And when costs increase, raise prices gradually: by one or two percent above the cost increase. To build equity, a company must make a profit.

John Malmo is a Memphis marketing consultant with more than fifty years experience. He is former chairman of Archer Malmo Advertising and specializes today in helping small businesses grow. To reach Mr. Malmo - or to buy a copy of his book When on the Mountain There is no Tiger, Monkey Is King - go to http://www.johnmalmo.com.