Value Pricing & Business Models for Creative Entrepreneurs

Lesson 2 of 33

The Entrepreneurial Money Mindset

 

Value Pricing & Business Models for Creative Entrepreneurs

Lesson 2 of 33

The Entrepreneurial Money Mindset

 

Lesson Info

The Entrepreneurial Money Mindset

A lot of you guys know that I started my business after I quit my officially dead end job, which was as a retail manager for Borders Books. They are dead now, so it is a dead end job. (laughs) At that dead end job, working 60 hours a week, my salary was 28,000 dollars a year. That works out to about 13 dollars an hour, if you're factoring out a 40 hour work week, but we had expectation of working about 50 hours a week at the minimum, so you know, do the math. So, when I started off in business, when I started off in kinda just freelancing myself out, you know, I can kinda do this, I can kinda do that, can I do it for you? I quoted people 25 dollars an hour. I was smart enough to think, I shouldn't charge what I was making before, what someone else told me I was worth. So I got really bold, and I doubled it. To 25 dollars an hour, yeah! And I'd get a job here, I'd get a job there, I drove out to somebody's house one time, more than one time. You know, I'd be on the phone with people. Bu...

t you know, I was maybe doing that three hours a week. And I really got to thinking that 75 dollars a week was not a good wage. This is not paying the bills, right? So, I moved my rate up a little bit more, and I moved it up a little bit more, and my skills grew, and my understanding of what I was able to provide to clients grew, and I understood eventually that not only could I just help people, you know, learn how to tweet, or could I help people learn how to put their business on Facebook, which, these are pretty finite tasks. You can find blog posts on these things. It isn't actually worth that much. Eventually I realized, I could help people transform their businesses. I could change people's lives with the information that they sat down with me for an hour to get. And so eventually, I started charging 500 dollars an hour. What I do for 500 dollars isn't that different from what I did for 25 dollars an hour. It is, and it isn't. But when it comes down to it, it doesn't look that different. The website's changed, the copy's changed, the way I talk about it has changed. And sure, I've gained more skills, and I've gained more experience, and I've seen more things. But have I changed? Not that much. Have I changed that much? No. What has really changed is my understanding of how people value the work that I do, what I can offer them, what it means to them, what I can allow them to accomplish, or help them to accomplish. That's what's really changed. The other thing that's really changed for me is that I got clear on the entrepreneurial money mindset. I got clear on the entrepreneurial money mindset. What is the entrepreneurial money mindset? Well, most of us, the vast majority of us, before we started our own businesses, worked for somebody else. We worked for a paycheck, and we got told what we were worth. This job is worth x amount of dollars per week, per month, per year, per hour. And we learned to live within, well, most of us learned, to live within our means of each paycheck. We started with a number at the beginning of the week, or at the end of the week, and we whittled it down to the bottom by the end of the week. Then we got another one, and we got to do the same thing. And even if we were really good at putting money in savings, still, we had a finite number to work with. And that finite number determined how we were going to live, where we were going to live. What apartment are you gonna get? What house are you going to buy? What clothes are you gonna buy? Are you gonna go on a trip this year? Are you going to put your kid in daycare, or are you gonna get a nanny? All of these things, all of these decisions we make, are based on the paycheck money mindset. They're based on a finite amount of money that we're told we're worth in our jobs. It's not necessarily bad, but the difference, when you're in your own business, is enormous. Because no longer is there a ceiling. But most of us operate as if there is still a ceiling. Most of us operate as if there is still a number that we expect to make, a number that we are planning for, that keeps us living a life that you know, maybe that life is fine, but is it the life that you really want? Is it the way you want to be living? Is this the business that you want to be building? So ask yourself, what's that money ceiling I've been living with? What is that assumption in my mind of how much I'm worth? How much I can make per year? I'll tell you, mine used to be 45,000 dollars a year. For whatever reason, growing up as a child, I got the impression that people like me, people whose skills don't necessarily fit the whole, you know, chemical engineering thing, or, when I was in college, it was actuarial science. The Ac-Sci kids were set. They did this really hard degree, then they took these really hard tests, and then they knew they could make six figures pretty soon after that. I was so jealous of those kids. But I knew, as a religion major, there was no way on God's green earth that I was going to make more than a decent professor's salary at best. And be paying off 100,000 dollars in school loans. This is not my life now, by the way, but I thought that was going to be my life. So when I started building my business and pricing my work, at some point I realized I was still operating under those assumptions. Instead, and when I realized this, I should say, instead of building my business up to the level, up to that level of assumption, I started imagining what all was possible, and then assigned a number to that. So where would I like to be living? Do I wanna live in an apartment that's 800 dollars a month, or do I wanna live in a house that's 1500 dollars a month? Do I want to fly back and forth across the country? Or do I wanna stay in my house all the time? The answer is actually both to that question. That's neither here nor there. But so I started considering all these new choices that had never been options before. Because for 45,000 dollars a year, you don't jet set back and forth across the country all the time. Some people do, those people are awesome, I have mad respect for travel hackers and people who live very minimally. However, that's not me. So I knew I needed to make maybe 80,000 dollars a year, 100,000 dollars a year. Can I build a business that supports that lifestyle and more? But to be able to do that, you have to be able to set a number to those things. So the question is, how do you want to live? How do you want to live? I have to give credit here to my friend Alexis Neely, who's got this great program called "The Money Map To Freedom". She talks about thinking of your kind of lifestyle goals in three categories: One is bare minimum to be happy. What's your bare minimum to be happy? The next is, what's kind of ideal? Like, if you really were, you know, serious "realistic" about things, what does that look like? And then, the last one is no limits. And that doesn't mean you go nuts. What it means is, you actually ask yourself, what in my wildest dreams do I want? Do I want a whole household staff? No, I don't want a whole household staff. You might, I don't. So I wouldn't put that in my no limits, but I may put a house on the east coast, and a house on the west coast. I may put a car on the east coast and a car on the west coast. Let's just go for easy here, right? So that might be in my no limits, because that would serve the lifestyle that I have and that I want. And so, you know, you don't have to use those categories, I'm not asking you to come up with numbers in each of those things, but what I do really want you to think about is how you want to live. Not how someone's told you to live, not how someone's assigned a number and you've made the choices that are appropriate to that number, but how do you want to live? Let's write a new baseline. So how much do you need to earn to get there? How much do you need to earn to get there? Now, this is, there can be a lot of numbers with this. You're not going to, especially you guys here. Maybe you guys online can do this on the fly, but I know you guys here don't really have the tools for this right now. But I would honestly, maybe, you know, tonight, when you're back in the hotel room, when you're back at home, sit down, start running some numbers. What would that house cost? What would that car cost? What would those trips cost? What would that service cost? You know, here's a lifestyle thing that I want desperately. Weekly massages. How much do I need to allocate in my budget for that? How much more do I need to earn to afford that? To make that a really just realistic choice? What do I need to get there? How much do you need to earn to live the life you want to live? This is about setting a new baseline. A new, it's not even, yeah, because let's not talk about this in terms of ceilings. We've got a ceiling right now, we wanna set a new baseline that blows that ceiling out of the water. Or that at least is your choice. There's nothing wrong with choosing to earn less. You don't have to earn six figures, but you want it to be your choice, not somebody else's. And then we need to think about, how does that break down into an hourly wage? How does it break down into an hourly wage? There's no easy way to do this, and there's no easy way to build it back into your business, but think about it. If you set this new number, how much does that mean you have to earn per month? How much does that mean you need to generate in revenue per week, per day, per hour? What is that new baseline hourly wage for yourself? And remember, this is only one piece of the puzzle, but this is a very important piece of the puzzle that way too many entrepreneurs, way too many service providers, way too many makers, way too many creatives, overlook. How much do you need to earn per hour, per month, per year, to live the life you want to live? Alright, before we break it down, I'd like to hear some of your answers to this, just because these are fun questions, and it's fun and important to verbalize it. It's important to verbalize it. So, Shauna, tell me, you know, give me the 30 second pitch of the life you wanna live, and how much, just as a guesstimate, you need to earn to get there. It's so funny because I'm thinking about this in both present and future tense. Which is a good way to look at it. Yeah, because they're different kind of lives, so, you know, I just left a full-time job where I made good income here in the city, six months ago, to start this new business, which has left me without that, and then we bought a house, you know? Oh, lord. So my husband's now carrying all of this. So there's a certain amount of income that would be great to at least make what I made before, which was a great income, to help out our family, and to have the same kind of level of life that we easily had. But I'm also looking at this as a future. We have a dream of kind of becoming nomads of the world, and that's why I'm creating this online business, to support that. So I don't know. It's so hard, you know, we were talking about comparing this to what we earned before, and you know, it's like, well, I made 60 grand a year at what I did before. Is that where I want to be now? Is that, you know, wondering, pricing that per hour looks different. That's not where I wanna be. But on the general annual scale, that would be great. I don't know, it's a hard question to answer. It's okay, that's okay. I think you're thinking about all the right things. And to know that you've got a particular goal that you have right now, which is replacing that old full-time income, and at the same time, there are choices that you can make that adjust that number. There are lifestyle choices. Could you get away with one car instead of two? Do you need as many work clothes? Probably not. This is one thing that people coming from corporate environments always forget. You don't need nearly as many corporate clothes. When you're working from home, it's much cheaper. So those are lifestyle decisions too, that affect what you need to be earning right now. But it's really good that you know the lifestyle you want two years from now, five years from now, because you need to be building your business to support that. Because business is not a "I'm going to do this, "to make this amount, now." You need to be looking into the future. Yes, there are things we can do to change stuff now and to make it better, and to get you to where you need to be, absolutely. But if you're not building that solid revenue system that gets you over here, those marketing and sales strategies that set you free that gets you over here, then you're not doing yourself a service. So I think that comparison is a really good thing to think about, and how you're doing that, so good on you, good on you. Tiffany, how do you wanna live? So I really want studio and homes in both Portland and on the coast, here. Absolutely. I wanna be in two places, bad. So yeah, I want my little shop there, my little condo in downtown Portland, and then I want that on the beach. And then I wanna travel. I definitely, one major vacation a year would be cool. I mean, like, take a month and see the world. And what else did I say? Oh, yeah, I love my spa days. At least once a month. I'd just be happy, you know, like full on spa day once a month. And yeah, sometimes, freedom, actually, was the big thing that I wrote down. Be able to go, like, take a walk, take some time and do all those things, so you have to kinda put a price on having the freedom to be able to do it all. Absolutely, absolutely, I think that's a really great point. You do need to put a price on those things, even if they're not expensive things. Even if, you know, the expense isn't as in your face. You're not handing over the credit card to go take a walk, right? But you do need to think about not only how you want to live in terms of what does it cost, but how you want to live in terms of, you know, I only wanna work 20 hours a week. Or I want to be able to take Fridays off, or Tuesdays off, or whatever it is, so that you can spend those days doing whatever it is that you want to do. That also has a price on it. So, that's really, really excellent. I'm wondering if there's anything online? I don't think this is the Scott Hamill, wasn't he in "Star Wars"? (laughter) That would be amazing. But it might be, so welcome, Scott. Scott is saying, "After reading 'The Paradox of Choice', "it's really hard to imagine what life "I would like to live in regards to material things. "I am very happy with the basics, "A happy, healthy family, safe, secure home, "Friends, family around, et cetera." "But," he went on to say, "I guess it's not really about how much money I can make "but how little I can work and still afford "the stuff that I want." And that's a really, really good thing to know. You know, I could talk a lot about making six figures, making seven figures, setting yourself up to have that kind of financial security, but another way to get financial security, right, is to know how little you need to make. So I think that that's really fabulous, that you're thinking about those kinds of questions as well, when we're talking about how you want to live. Because you can build a business, you can set your prices, you can build your business model in a way that allows you to do that. Now, The Rainy Day Store is somebody who's with us quite often, and she actually set up her own eBay store at home, and she's been working very hard to build that, and she's now got to the point where she says, "I want to get my husband to quit his job "so that we can be working together, "so I know I need to be making 80,000 dollars a year "so he can do that." and then they can work together on her project. Fantastic, great goal. I had a similar goal at one time in my life. And those kind of goals that you can put a story on, that have an experience that mean something to you, because again, those numbers, those numbers don't mean a whole lot to you. What does 45,000 dollars, what does 80,000, what does 150,000 dollars actually mean, it's just a number. When you've got an experienced goal, when you've got a story goal, that's something you know you're going to be working day in and day out on. So that is a really, really great way to look at it. Both something that means something to you, and something that's absolutely quantifiable for you as well. Alright, let's look at how this breaks down, now. So we need to be able to think about, in your business, how many hours will you be able to bill for? Now, that can mean a lot of different things in a lot of different businesses, so bear with me for a minute. How many hours will you be able to bill for? That might be how many pieces of jewelry, or how many pillows, or how many quilts you can sell. And what does that equate to in your percentage of that revenue in terms of labor? Okay, does that make sense? So pieces, per pieces of products, can equate to a percentage that you're charging for labor, or a dollar amount that you're charging for labor, and that equates to the revenue that's coming in that's yours, alright? If you're a consultant, if you work one-on-one with people, if you're a yoga teacher, if you're a photographer, most likely, there is at least some part of your business in which you're charging an hourly rate for. That's easy, that's how much you bill for. If there are any other businesses that I'm, that this question is not making sense for, please let me know. The only other place that this would be weird is in completely leveraged businesses. In which case, so what I mean by that is so for instance, I do a program. I don't really do any one on one consulting anymore. Instead, I have a program that mimics one on one consulting. So that program has a certain number of hours that I work in it every week, and I know how much revenue that program brings in every time I offer it. So I can do the math and say, well, if I'm working 10 hours a week in this program for these people, what is my, those are the hours I'm billing for essentially and I have to be able to cover what my time is worth with the price and the number of people in that program. So I'm not actually billing anyone, they're paying for this program, they're purchasing almost a product. But I'm still able to say, okay, this is the amount of time this takes for me, and those are the hours I would be billing for. Make sense? Good, I'm getting lots of nodding heads, I like that, thank you. Alright, oh, which leads into the next question, how leveraged is your work? (laughs) So can you do something like I do, where not only do I have that program, but I have a whole other community. That community takes, you know, maybe three hours of work a week, and it pays me per person, per month. So that's recurring revenue that's almost completely leveraged. Because even though there are, you know, there's 200 members in that program right now, I don't have to email with all 200 of those people. They get value from the program as being part of the community, from seeing me interact with other members of that community. And luckily, there's people in this audience who are in that program and who are nodding their heads right now, and that makes me very happy. So that's kind of leveraged work. It's a way of leveraging work. Another way is, you know, I've got e-books. So those e-books sell, I don't have to do anything for that anymore, right? So I've got "The Art Of Earning", I've got "The Art Of Growth", when people go on Amazon, or they go on my website, and they buy that, I don't do anything, I just look at my phone, the little PayPal notification comes in, I get really happy for a minute, and then I go about my business, but I don't have to do any work. So leveraging your work allows you to think about billing for less, or working less. Here's a question that not enough people ask: What growth activities do you need to make room in your schedule for? What growth activities do you need to make room in your schedule for, what do I mean by this? This is expanding your reach, broadening your customer base. Do you need to do a PR campaign this quarter? Well, that's a growth activity you need to make room in your schedule for. If you need to bill 25 hours a week, and you only have 15 hours per week left, say, on a 40 hour work week, do you have time in your schedule for that growth activity? Probably not. Probably not, so you would need to cut back on your billable hours, to be able to work that in, so that hopefully the PR campaign can bring you more leveraged work. See, it's a whole system-y thing. So what are those other growth activities? We all have things in mind that we say, if only I had time for, then everything would be better. List those things in your workbooks right now. I haven't really mentioned the workbook at all, but there's a follow-along workbook, and when you enroll in the program, you get that for free. So if you haven't been following along with that, I highly suggest it, but write that down in your workbook now. What are the growth activities you would like to make room in your schedule for? What are all those 'if only's that you hear yourself saying all the time, or maybe you don't even say them, maybe they're too scary, and you only think them. Write those down, too. And here's the last one. What business expenses do you need to make? Because here's the thing, you own your own business. Every dollar that comes in is not your income! I know I have a hard time, actually, I will admit to this, I have a hard time remembering that myself, okay? Yeah. I think we're confusing a few people. Can you define what leveraged work actually means? Yes, so I'm gonna go into this a lot more tomorrow, but leveraged work is when you get paid more, it's when you get paid more to make a bigger impact for your customers or for your clients without you having to do as much work, alright? So if you literally think, I have a graphic for this tomorrow, but if you literally think of a lever, you can lift a bigger load with less effort when you use a lever. So it's an e-book that you can sell a thousand times that only took you ten hours of work to make. Or it's a program that you offer over and over and over again that's like your one on one service, but instead of serving one client at a time, you're serving 20 clients at a time. That's leveraged work. Yes? Would like a monthly or yearly membership fee be considered leveraged work? Absolutely, unless that is like, people pay you a year to work with them one on one, which some coaches do. That wouldn't be leveraged, but most of the time, those kind of membership programs, absolutely, are leveraged. Another way that I think about leverage in terms of maker businesses, is wholesale. Wholesale isn't exactly leverage, but it's got a similar kind of thing going on, because you're selling 100 pieces at a time, instead of one piece at a time. So you know, you go to a trade show, you put in that 20 hours of work at the trade show, and maybe you leave with 20,000 dollars in orders, you've only done 20 hours of work. Yes, you need to make those pieces, yes, I know, then you need to ship them out. And that's why it's not exactly the same thing, but that's a good way to think of that, in terms of maker businesses, and specifically business that are really used to retail, and haven't really gotten into wholesale yet, this is a way that you can sort of start working more towards leverage. Would you say that's accurate? I would say that's accurate, I was actually going to ask, though, if you had some other ideas for, because to me, that's not very leveraged, it's a lot of work. So do you have some ideas? But it dramatically reduces your sales time. Like, I guess I was thinking, yes, I was thinking in my head, maybe a monthly, we'll take jewelry, a monthly jewelry subscription, or like a box, you know boxes are hot. Yeah, absolutely, so like jewelry of the month club, earrings of the month club. Yeah, yeah. That's kinda what came to mind when I was thinking of products based in that. But, same, you still have to make it. It is, it's exactly the same thing. If you make physical goods, the only way you can really leverage your time in that, is to have someone else make the physical goods. So in this case, what you're really leveraging is your sales time and your marketing time. When you go to a trade show, you are in buyers' space, all day long. These are people with enormous budgets to buy new product for their stores, or for the stores that they represent, and you're just standing there and waiting for them to come to you. So in a maker business, that's about as leveraged as it's going to get. Yeah, but I like the way you're thinking on that. Yeah, Robin? Coming from a product base, working for a jewelry company, one of the things I loved was working corporate gift, because they would buy one item, but massive quantity, which would cut down our production, and so if you cast something, you're casting the same thing, so the cost goes down, and it just, even though it's a lot of work to make it, it's still, it's a lot easier. So it's semi-kind of leveraging. And you know what, ease I think is a really good way to look at that as well.

Class Description


Ready to reach your revenue goals with less hassle and more ease? Join CreativeLive for a class that will teach you the core pricing and business modeling skills every creative entrepreneur needs to know.

Business strategist Tara Gentile will take you step-by-step through the process of using multiple revenue streams to amplify the earning potential of your business. If you're operating your business launch to launch or contract to contract, this is the course for you. You’ll learn the principles of value pricing so that more customers are ready to buy. Tara will also guide you through the process of creating a business model that makes selling natural and sustainable. You'll never worry about where the next sale is coming from again.

By the end of this course, you’ll have concrete, easy-to-implement strategies for running your business with the business model and pricing that will help it thrive.

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