February 1, 2012 in Finance
Yesterday, I introduced the concept of living within the gift. I said it is the basis for the new economy. If you missed that article, you need to read it to help you understand this one.
This concept begs the question, “If everything is a gift, how do I get paid?”
A close corollary to this is, “If everything is a gift, how do I know what to charge or even if I should charge for my products and services?”
Here is how I worked through these questions.
When I started my accounting practice, I wanted to charge what customers thought was fair. In fact, I initially requested payment that way.
This caused no small amount of confusion as each client said, “I don’t know what is fair.”
After muddling through a couple of months of this dance, I settled on an hourly rate for some projects and set prices for certain services. Some clients complained because the price was too high. Others said I wasn’t charging enough. I gave discounts to the complainers while raising my prices to market conditions.
I didn’t feel great about my pricing. I just saw it as a “necessary evil”
About ten years after I started my accounting business, I worked for a couple of years in the gourmet food manufacturing business. I learned a lot about product markup there.
I discovered the retail markup in that industry was ten times the cost of manufacturing. This allowed room for a wholesale price and included a percentage for paying distributors.
Ten times may seem like a lot. However, if the retail price of an item is three dollars, the gourmet food store wanted to purchase it for $1.50 and the distributor wanted to buy that product for seventy-five cents. If the cost to make the product was thirty cents, the manufacture only received forty-five cents, a 1.5 times markup. A gourmet food manufacturer had to move a lot of product to pay for the building and infrastructure to stay in business.
That experience helped me in establishing my pricing. I’ve found a system that works for me and my clients. Today, when I do business consulting, I always tell my clients to charge the most they can charge. High prices can occasionally be discounted. Low prices close business doors.
Of course, that doesn’t mean everyone is comfortable charging the highest price possible.
When clients discuss this issue with me, confusion reigns. No price seems “right.” This is especially true when someone is giving a spiritual gift such as healing or consulting.
In fact, old-school Native American medicine men aren’t allowed to receive anything but sustenance for their services, usually in the form of grains or livestock.
I believe the concept of living within the gift clarifies pricing for business.
I like to get paid for providing services. There is a sense of satisfaction that comes from knowing I did a good job for the client and receiving a financial reward.
However, I love it when a client expresses gratitude for my services. I love it when that client writes the check without complaint. I love it even more when he or she tells me how they got great value for the money paid.
Notice, I like compensation. I love gratitude.
This paradigm shift requires each person, the businessperson (the giver) and the customer (the receiver), to move to a place of gratitude.
As the giver, I’m grateful for the gift I have to give. I realize no amount of compensation is adequate. Therefore, if I must set a price, it must be high.
As the receiver, I’m grateful because I received the gift. I respond by giving to the giver’s livelihood so the giver may continue to give to others. In other words, “I pay it forward.”
In fact, this is exactly what is happening in a small town South Carolina coffee shop where it has become increasing difficult for customers to pay for their own cup of coffee. People just keep paying it forward.
This paradigm shift to gratitude is already in our consciousness. We just need to learn how to use it.
I’ll tell you how I intend to use it in tomorrow’s article.