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Am I undercharging my service?

Manthe

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Hello fellow Fastlaners.

I want to ask you a question about my pricing to one of my customers.

My customer has about 10.000 customers B2C selling a digital product (information), and the income of the business is about $1.500.000 per year.

What I do for my customer is this:

I provide the fulfillment of the digital product, including automation and customer database.
I provide the payment solution which includes Stripe, invoice creation and Mobile Payment system.
The subscription model B2C is one year at the time, so when it's time to renew the subscription, I arrange for a new offer.
The platform I built also handles SMS messages.

Basically I run the complete operation, and the owner just provide me with information of what to put in the information he is selling.

I charge him $5000/month for this.


Expenses for all the tech platforms is paid by my customer, but basically he has a business with about 5% costs and 95% profit, where my part of the cost is 4%.

Is this realistic or should I charge something else?

Cheers Måns
 
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Looking4CENTS

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Jan 23, 2023
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I think taking a look at your overhead, and opportunity loss in terms of time for you is important.
How much of that 5000 is true profit? Be brutally honest with these calculations, give yourself more cushion than not.

As your profit margins currently exist, how much opportunity [time, energy, resources] is left for you to scale and work ON the business?

Then It would be a question of scaling desire and capacity of your business. Are you at capacity with clients paying 5k per month? Or is every client a unique scalable fee? If you are already at operational capacity you can raise your prices.

What is your capacity? How many total accounts? How do you want the math of the opportunity vehicle to look? What working dynamic do you want to build and deal with in your business?

I would say double your prices. But before you do...

Think about your value skew and the de commoditization of your product/service - how will you build and deliver your value stack to be incomparable and dominate your niche. Use the extended profit margins to create a higher level vehicle and value offering. Keep the clients that understand and desire the next level, you may lose some, but you'll likely make MORE money and have MORE time.
 

Andy Black

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Hello fellow Fastlaners.

I want to ask you a question about my pricing to one of my customers.

My customer has about 10.000 customers B2C selling a digital product (information), and the income of the business is about $1.500.000 per year.

What I do for my customer is this:

I provide the fulfillment of the digital product, including automation and customer database.
I provide the payment solution which includes Stripe, invoice creation and Mobile Payment system.
The subscription model B2C is one year at the time, so when it's time to renew the subscription, I arrange for a new offer.
The platform I built also handles SMS messages.

Basically I run the complete operation, and the owner just provide me with information of what to put in the information he is selling.

I charge him $5000/month for this.


Expenses for all the tech platforms is paid by my customer, but basically he has a business with about 5% costs and 95% profit, where my part of the cost is 4%.

Is this realistic or should I charge something else?

Cheers Måns
Just curious. What reason will you give your customer for increasing prices?
 

LateStarter

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Hello fellow Fastlaners.

I want to ask you a question about my pricing to one of my customers.

My customer has about 10.000 customers B2C selling a digital product (information), and the income of the business is about $1.500.000 per year.

What I do for my customer is this:

I provide the fulfillment of the digital product, including automation and customer database.
I provide the payment solution which includes Stripe, invoice creation and Mobile Payment system.
The subscription model B2C is one year at the time, so when it's time to renew the subscription, I arrange for a new offer.
The platform I built also handles SMS messages.

Basically I run the complete operation, and the owner just provide me with information of what to put in the information he is selling.

I charge him $5000/month for this.


Expenses for all the tech platforms is paid by my customer, but basically he has a business with about 5% costs and 95% profit, where my part of the cost is 4%.

Is this realistic or should I charge something else?

Cheers Måns
There's a lot of missing context here around your business which makes it difficult to provide more helpful insights. I'm assuming there's more to your business than just this one customer, but generally speaking I think you're asking the wrong question.

By asking about your rate, it's more aligned with a mindset of an hourly worker. "Is my hourly rate reasonable?" or in other words "How do I increase my hourly rate?". By seeing how much he's making vs your perceived contribution to his revenue, you want to to take more from him rather than focusing on your own business growth. Would you ask for more if his business was only doing $150,000/year? My point is, this is not coming from a mindset of abundance, but more out of comparison and greed.

The bigger question is around how you're scaling your own business. Create more revenue by giving more. Help more people by replicating your platform for others. Adjust your pricing when speaking with new clients by understanding what they're paying now and how your value compares to their current provider. Give more value to current clients by enhancing your platform. Ask for more as a result of the additional value you'll provide instead of 'doubling your rate' as others suggest (no offense intended). If you follow that advice, what do you think doubling your rate will do for that relationship? Or more importantly your business and personal reputation?
 
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KostjaX

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Nov 17, 2014
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Fulfilment isn't the levarage in his business. Who is responsible for the marketing strategy and operation?

Forget about the expanses of your client, it's not your business. Try to figure out what your own relevance in his business is, how long it will take to replace you appropriate and how much opportunity costs he will have on a annual basis to do so. Charge him 80% of those costs on top and hope he is too lazy to change a running system mid term. Be nice and don't push too hard. Your position isn't that good. Especially if you are not diversified.

Sorry if it isn't the answer you like to hear. But let's keep it real.
 

Johnny boy

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You need more clients so you feel free enough to raises prices for no good reason and not worry if they will leave. Right now the "right price" is whatever ensures he won't take his money somewhere else. If you had 10 more customers each paying 5k a month then that's a different story.
 

Kevin88660

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Hello fellow Fastlaners.

I want to ask you a question about my pricing to one of my customers.

My customer has about 10.000 customers B2C selling a digital product (information), and the income of the business is about $1.500.000 per year.

What I do for my customer is this:

I provide the fulfillment of the digital product, including automation and customer database.
I provide the payment solution which includes Stripe, invoice creation and Mobile Payment system.
The subscription model B2C is one year at the time, so when it's time to renew the subscription, I arrange for a new offer.
The platform I built also handles SMS messages.

Basically I run the complete operation, and the owner just provide me with information of what to put in the information he is selling.

I charge him $5000/month for this.


Expenses for all the tech platforms is paid by my customer, but basically he has a business with about 5% costs and 95% profit, where my part of the cost is 4%.

Is this realistic or should I charge something else?

Cheers Måns
At end of the day is about if he can find the same quality of service elsewhere for significantly less cost.

Pricing is really about bargaining power first, over value and affordability. While he could afford to pay you more and you offer massive value if someone undercut you significantly and can do the samething it will be no brainer for him to move.
 
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BizyDad

80% of small businesses fail. So start a big one.
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Hello fellow Fastlaners.

I want to ask you a question about my pricing to one of my customers.

My customer has about 10.000 customers B2C selling a digital product (information), and the income of the business is about $1.500.000 per year.

What I do for my customer is this:

I provide the fulfillment of the digital product, including automation and customer database.
I provide the payment solution which includes Stripe, invoice creation and Mobile Payment system.
The subscription model B2C is one year at the time, so when it's time to renew the subscription, I arrange for a new offer.
The platform I built also handles SMS messages.

Basically I run the complete operation, and the owner just provide me with information of what to put in the information he is selling.

I charge him $5000/month for this.


Expenses for all the tech platforms is paid by my customer, but basically he has a business with about 5% costs and 95% profit, where my part of the cost is 4%.

Is this realistic or should I charge something else?

Cheers Måns

Are you capable of being the boss?

If you can replicate what he's doing, then raise your price now.

If he says yes, you win. If he says no, you become the competition and you win.

If you are not capable of being the top dog in that kind of organization, then leave your price where it is. You were happy with your price for a long time. It seems like a fair price to me.

Focus on getting more customers, like other people have said, and when you have enough customers then look to raise your price some.

Honestly, I imagine there are a lot of people that would pay you five grand a month to build them a 1.5 million dollar business.

The question is, why haven't you built yourself a 1.5 million business?

(Which is a question I used to ask myself for years...)
 

Ing

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Is that the only customer, whom you are worth 5 k/month?
Than leave it as it is.
Don’t rise the price, raise the numbers of customers first!
 

Manthe

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First of all I want to thank you all for your great feedback.

I'll try to answer all your questions in this post.

@Looking4CENTS I like your answer, and I need to explain.
This is my first actual seriously paying customer. All the automatons I built for this customer has thought me soooo much.

I basically did wht MJ recommends. Learn (and invest in your own knowledge) and do.
So I must have out down at least 1000 learning hours (free of charge) but when the system was built I started to send invoices, that was the deal.

Actually I don't want anymore customers like this, since it is not scalable . Everything is custom built.
However I estimate that I put in about 8-10 hours per month for this customer, just to watch over the system and handle Stripe payments that fails and stuff like that, so I am not in full capacity, but I will be pretty soon if I get more customers like this. TO actually outsource what I do every month will be pretty hard (I think) since it involves everything I have learnt through the years, and it is uncommon to find all those qualities in the same person (hence I want to charge more...)

@Andy Black , we have a good relation and I'm not thinking about doubling the price, but maybe increase the price 10% or so, so that wont be an issue, and my customer is very happy for the work I do. He has tried to involve other "agencies" but soon realized that it will cost VERY much to let someone else do the job.

@LateStarter I really like your answer aswell. I am not actually thinking about my hourly rate, and I am thinking the way you say, more of "how much is this worth for my customer".
I really dont want anymore clients like this one, and I am no working on another idea which support the CENTS model 100%.
I will focus on helping other customers with my new idea, and see where it takes me when it comes to creating a productorisy (spelling?...)

@KostjaX I am thinking they way you say. It is quite hard and very expensive to change the work I do to someone else.
My customer have tried that before, just to secure that I am not the only one that can run his business, but other agencies are not working for free and they charge almost what I am charging just to standby incase I am on vacation.
I have documented all parts of the system very well so anyone that understands business automation should be able to help out with a quite low learning curve.
However my customer was to "cheap" to have other agencies "standing by" and charging for not doing anything really.

@Johnny boy I dont want anymore clients like this. I am focusing on another businessidea now that is more scalable and CENTS approved.

@Kevin88660 It is not easy to change to another agency. It has been tried before but the cost from "proffessional agencies" are way more than I charge. Hence I want to charge more, but I dont see myself as a proffessional agency since I am the only one in the business (so far...)

@BizyDad I think your reply gave me the best clarity.
If I think I am running a $1.500.000, why am I doing it for someone else and not for myself?
That is a f*cing good question, and it raises my horizon.
If you read above you see that I actually dont want anymore clients like this, since it is hard to scale.
I am working on a new project where the product is ready to sell as an MVP, and I am currently working on new customer outreach to see what happends. So far it is looking good, and I have one new client that signed up instantly when he saw the product, and next week I will reach out to at least 10 new customers and see what their response will be.

Exciting times, and I really love the journey.
My first customer (the one I mentioned in my original question) has give me the opportunity to pay for stuff I need to market my new idea,so I kind of re-invest that money inthe the business.

The new idea is not that profitable as my current customer on a monthly basis, but is has way more potential to scale without me doing a lot of work.


BIG THX for all your replies
 
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