Know Your Market Worth : Starting a Home Based Business Series

In my post last week 5 Tips for Starting a Home Based Business the first tip was Know your market worth.

As I wrote then:

It’s probably a reasonable statement that for most of us setting up a professional services business from home, we come from having a role, a status, probably even a title, in our previous place of business or work. They helped identify our worth to our employer or other prospective employers. Now we need to work out a fresh valuation of our worth in the market.

I believe this is a real issue for many people, and not just for professional people setting up a home based business.

25 June:Working at home by Sladey via Flickr
It can be an issue also for anyone on a regular wage or salary. They also may need to do some work on assessing their market worth, but they don’t have the imperative that those of us do who are not on that kind of fixed income.

Longish story alert

One of my earliest experiences of trying to assess my market worth was when I started driving taxis. A long time ago. I was driving for a really good owner – a friend of the family actually – and it was a good car, unlike some of the dreadful clunkers I drove at another time for another owner, a “managed cab”, a term which in Sydney in those days usually meant clunker.

Having a good car to drive and a good owner who gave you a fair percentage was important to me, so I wanted to do the right thing and keep the job.

I wanted to know I was worth his while keeping on.

Fares notice in Sydney taxiBut listening to the other drivers talking over a beer at the end of the shift, about 2.30 am, I would get quite disheartened and think no matter how hard I was driving I was not making enough money. Which by extension would mean the owner would not be happy.

I spoke to the owner and told him about this. He was a friend of my brother, who had put in a word for me to get the job and I wanted to not have any misunderstanding.

He just said, “You’re doing fine. What you need to understand is that all cabbies are liars. Those blokes you hear talking over a beer are the ones you’ll see sitting on the rank all day. Nobody ever made money sitting on a rank.”

Now, I wouldn’t want to be accused of saying all taxi drivers  are cavalier with the truth, or even all Sydney taxi drivers at that time. But what I learned from the owner’s observation was to not necessarily assess my worth by what people said, even people who were apparently in the know.

What others said could be useful but I should figure out what their game was, what incentive if any they had to tell the truth rather than exaggerate to impress others (in this case, other drivers, usually men, sitting around and trying to make themselves feel good after a night of ferrying drunks and various late night types around the city, or worse, not finding enough drunks and other late night types to hire them).

What the owner thought was much more important as a gauge of my worth as a cabbie. He knew the game having been in it for many years, he knew what other drivers made in a night, he knew what I was paying him and it was in his interest (because I was earning on percentages) that I did well and he knew from the meter readings what I and other drivers were taking in a night.

Some things were not so obvious as measures of my market value, but over a few years in the game I realized for instance that owners who drove their own cabs would rather have a careful driver making a few dollars less a night than a cowboy driving the owner’s cab into the ground or having accidents and actually costing the owner a lot more in the long run, especially when the cab had to be taken off the road to be fixed and thus was not earning anything. Plus the fact that owner-drivers like the vehicle they are driving themselves for some shifts to be in tip top condition so as to make their lives more pleasant. I found that some owner drivers would rather not have their car on the road than with a driver they couldn’t trust to respect the car and the owner’s wishes.

The main point of the story was I had to learn non-obvious ways of assessing my worth in that market, if I wanted to drive for good, honest owners and especially with good, well-maintained cabs in which I was going to be locked up for the better part of 12 hours or so, night in, night out. Just being a fast driver who took a lot of fares was not enough and might actually be a disincentive for an owner to hire you.

I could go on. The naked city is full of stories and cabbies see a lot of the naked city.

And by the way, if you talk to cabbies or ex-cabbies you really don’t want to encourage us to tell cab stories or else you need to have a good excuse to get away after about the third story.

Where was I? Oh yes, knowing your market worth

The cabby story points out one way of knowing – or at least getting a feel for – your market worth. You ask someone you trust, who is very knowledgeable in the field and who has a basis for knowing what you are worth. This is a person who will have an informed knowledge of what people in your field are charging (and earning – an important distinction!) and what the buyers regard as a fair price range.

When I started coaching I had been a consultant for about fourteen years and had an idea of my market worth as a consultant but not really as a coach. A very experienced and successful executive coach asked me what my hourly rate as a coach was. He had known me for years and we had worked together. He told me I needed to double my rate immediately and then increase it again about six months hence. He told me, and illustrated his point with some specific examples, that at the rate I had nominated I simply would not be taken seriously by corporates.

What about asking others in the field?

Another way of assessing your market worth in terms of what I call a what will the traffic  bear way- or what others might refer to as industry standard rates, or “going rates” – is to ask others in your field. An obvious risk there is that you might have an experience like mine sitting around with those cabbies all those years ago and getting lied to.

But as in many fields people will list fees and charges on their web sites, you may be able to get an idea by doing some online research. One obvious limitation of the data you can get in that way is that people do deals and if you could be a fly on the wall you might find that the consultant who declares on her website that her fees are, say $2,000 a day, may be doing deals for half that amount.

Ask the buyers?

Prospective buyers are not going to be truthful with you, as a rule. Why would they tell you a fair price if there is a chance they can get you for less?

But one way to get a sense of whether your value is going to be recognized is to ask, with as innocent an air as you can “What sort of budget do you have for this project?”.

Sometimes they will refuse to answer, or they will lie (usually a lowball figure) but with the more open ones you may be able to get a sense early on as to whether they are prepared to pay you appropriately or whether they want to get you on the cheap. For the lowball ones you can immediately save yourself a lot of time pitching, thank them for their frankness and move on.

And there will be plenty who want to get you on the cheap.

Recently someone wanted me to travel to another country, economy class, for the better part of a day each way, and pay me $1,000 for a two day workshop. With preparation and travel that would realistically have meant I worked for a whole week for a fee a lot of people in my field would consider possibly reasonable for about half a day’s work, with only same city travel.

But to tell you the truth I would not be at all surprised if they found someone to do it. You know the kind of story people spin: “There will be a lot of senior executives there. You could get some very lucrative consulting from it.” Or you could spend the next month or so kicking yourself for selling yourself short!

There are other factors at play here, like scarcity.

If you have a highly specialized skill set and a company wants your expertise and cannot easily find it elsewhere, then they may well pay you a lot more than “going rates”.

Sometimes the buyer will be up front and say they really need you. It’s a nice feeling, although as a consultant you have to be careful you are not being handed the can-of-worms project (been there, got the T-shirt, and a reminder to myself to not be so easily flattered next time). At that precise time they say they must have you and no one else can do the job, stay calm and don’t gouge, but don’t be too kind either. They will in such circumstances have a lot riding on the project and you might find as the pressure mounts that you were wise to aim up and ask for a bit more than usual.

Trial and Error

If you are game – and why wouldn’t you be if you have decided to be a solopreneur? – you could start to test the market by aiming up, increasing your rate by say fifty percent and seeing whether people object or baulk at that. If you always go lowball, that’s what you’ll get. And you can always offer a “special discount” but not a “special increase”.

A colleague of mine, who knew his business and whose fee structure was not modest, used to play a game with prospects. If a prospect, wanting to hire him but for less than he was quoting, indicated they wanted to negotiate on fees, he would ask, with a smile “You want to pay me more? Sure.”

That’s what I call healthy self-regard for one’s market worth. But that particular gambit is not for the faint-hearted.

But the real message I want to get across here is:

Basically, don’t sell yourself short

OK, so you work from a home office and your competitors have big shiny offices downtown and wear two thousand dollar suits. So you can’t charge what they charge, can you?

Can’t you? Why not? Is your brainpower less than theirs? Your knowledge of the field? Your credentials”?

Can they deliver better results for the client than you? If so, maybe you should charge less, but think about it before you pitch.

I suggest it is not a smart move to discount your services because you don’t have their fancy overheads. Do you think your prospect wants to pay for brainpower, or for glass and concrete towers and receptionists and security staff at the front desk?

So what we are talking about here is value for money. And if you can deliver top value, then you should think about top dollar.

I know there are all sorts of variables and some clients and prospects will in fact be dazzled by the big offices and the two thousand dollar suits and the receptionist making them coffee while they wait in the foyer and look at all the very expensive art on the walls. But do you really want those people for clients? If you do, maybe you do have to charge less.

But what those of us who work for ourselves have to remind ourselves of is that bigger is not necessarily better. And we have to remember, and maybe even inject a bit of this into our marketing, that big firms don’t always get it right. Nor do they always deliver better value for money just because they are bigger.

Have you ever been in a situation in your corporate days where the partners from a prospective service provider swept in, did the pitch, maybe even bought lunch, and then you never saw or got to speak to a partner again but only to less than totally experienced operatives with business cards that carried grand titles – the corporate workhorses who did the work and got charged out at much higher rates than their pay packets, if you could see them, would lead you to believe was proportionate.

To sum up, when you are assessing your market worth, value your true worth in the market and, again, don’t sell yourself short.

Especially don’t let the fact that you have freed yourself from the corporate game and set yourself up as a solopreneur mean you should charge or expect less than your competitors with big offices and all the corporate trimmings to maintain.

Yes, we all make adjustments and we all have to pay the bills. We just have to be careful not to make adjusting and quoting lowball a mark of how we do business.

Did I say, don’t sell yourself short?

Have any experiences you’ld like to share about learning or assessing your market worth?

Image credits:: “25 June: Working at home” by Sladey, via Flickr (CC BY -ND 2.0) |
Taxi fares notice by bigmick via Flickr, (CC BY -SA 2.0)

The series: 5 Tips for Starting a Home Based Business

Tip 1: Know Your Market Worth : Starting a Home Based Business Series

Tip 2: Build an Order Book: Starting a Home Based Business Series

Tip 3: Build New Networks: 5 Tips for Starting a Home Based Business

Tip 4: Ask for Help: 5 Tips for Starting a Home Based Business

Tip 5: Love the Business You Are In: 5 Tips for Starting a Home Based Business

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About Des Walsh

I show business owners and other professionals how to navigate the social media maze and use LinkedIn effectively. I'm an author, speaker, business coach, social media strategist and LinkedIn specialist. Connect with me on LinkedIn, Google Plus and Twitter. And to stay in the loop, get my weekly Social Business Bites.

Comments

  1. That was a long read, but I enjoyed the analogy. Anyway, the location and original currency of the business or independent contractor are also important in weighing market value. Well, that’s where I’ve mostly based my rates as well as in negotiating for outsource work.

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