What this article covers
Opher Ganel argues that most small business owners and solo practitioners he coaches undercharge for the difference they make. Using two worked scenarios, he shows how raising an hourly rate to $150, with no extra hours, can roughly double profits and boost annual savings more than tenfold, then explains how to get past the impostor syndrome, fear and empathy that keep owners from doing it.
Key Takeaways
Raising your rates, not working more hours, is the simplest way to double small business profits
In Opher’s low-margin scenario, raising the rate from $125 to $150 an hour on the same 1,000 billed hours lifts revenue to $150,000 and nearly doubles pre-tax profit from $25,000 to $49,000. Because expenses barely move, almost every extra dollar of revenue becomes profit.
Directing part of the new profit to savings can grow assets about 10 times faster
Putting half the new profit toward savings and investments takes the low-margin owner from $1,250 a year to roughly 11 times as much. In the high-margin scenario, moving from $80 to $150 an hour adds $63,000 of profit, enough to save more than 10 times as much while still raising the household’s standard of living.
Impostor syndrome, fear of losing clients and empathy are what keep owners from charging what they’re worth
Opher’s reframes: clients who keep paying prove your value, the right clients will pay more for the difference you make, and no price (even $10 an hour or free) lets you help everyone. Charge what you need and offer targeted discounts to the few clients who truly need them, rather than discounting for everyone.
It was 2017.
A new client had a problem with her small business.
She was working about as many hours as she wanted but was having a hard time making ends meet, let alone getting ahead.
One simple bit of coaching I gave her would make a huge difference, but she took months before adopting it.
Why Raising Your Rates Is the Simplest Way to Double Small Business Profits
Almost all my clients have the same issue.
Undervaluing their services and the difference they make.
If you ask them if what they do makes a huge difference for their clients, they’d say yes, but what they charge for those services doesn’t reflect that value.
It’s about setting prices like a business, not giving in to fear, imposter syndrome, or the notion that you’re responsible for helping everyone, to the detriment of your family, and even your clients.
How Much Can Raising Your Rates Increase Profits and Savings? Two Scenarios
Let’s look at two scenarios.
One where your profit margin is minimal, the other where it’s relatively high.
Scenario 1 Assumptions: Low Profit Margin
Here are the assumptions:
- Hourly rate $125
- Annual hours billed 1000 (about 20 hours/week)
- Annual revenue $125k
- Annual business expenses $100k
- Annual profit (pre-tax) $25k (20% profit margin)
- Savings rate 5% ($1.25k/year, if you can even afford that given your low income)
Scenario 2 Assumptions: High Profit Margin
Here are the assumptions for this scenario:
- Hourly rate $80
- Annual hours billed 1000 (about 20 hours/week)
- Annual revenue $80k
- Annual business expenses $30k
- Annual profit (pre-tax) $50k (62.5% profit margin)
- Savings rate 6% ($3k/year)
Scenario 1 After Modest Rate Increase
If you were my client, my initial priority would be to figure out why your expenses are so high. However, for our purposes here, let’s assume you can’t reduce them.
What you can do is increase your rates to $150/hour (and we’ll assume this increases costs by $1k, e.g., due to higher merchant card service fees).
With no additional hours, your revenue increases to $150k, and with $101k in expenses, your profits nearly double to $49k. Assigning half the new profits to savings and investments, you’re setting aside ~11x as much as before, which grows your assets more than 10x faster.
Scenario 2 After Significant Rate Increase
Since your rate was just $80/hour, you decide to increase it to a more reasonable $150/hour.
With the same hours worked, your income is now $150k. Your expenses are almost unchanged, with just a $2k increase in your annual credit card servicer fees, and possibly an extra $5k in marketing spend.
Your annual profits go up by $63k, more than doubling your previous profits.
You divert 2/3 of the new profits, ~$31.5k, to savings and investments, using the remaining 1/3 to modestly increase your standard of living. This brings your savings amount to $32.5k, more than 10x your previous savings rate, which increases your assets 10x faster.
All this while increasing your standard of living by nearly 50%!
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Why Do Small Business Owners Undercharge? Impostor Syndrome, Fear and Empathy
Going back to my client, it took her months to accept and implement my coaching. Other clients were similar.
Why?
The answer comes in different flavors, but here are the main components:
- Impostor syndrome: “Who am I to charge so much?”
- Fear: “My clients won’t be willing to pay so much more!”
- Empathy: “Lots of potential clients can’t afford such high rates!”
How to Get Past the Emotional Roadblocks to Raising Your Rates
Here’s how I reframe things for my clients to help them get past the emotional roadblocks.
Impostor syndrome
Believe your clients!
They’re paying for your services from their hard-earned cash. Are they fools? Of course not! If you made no difference, they’d go elsewhere.
The fact they keep coming back proves you’re no impostor!
Fear
The unavoidable truth is that some (perhaps many) clients willing and able to pay $80/hour will not be willing and able to pay $150.
However, some will and others will come who are willing to pay more for the difference you make.
You likely need to change how you find and reach prospective clients, rethink your ideal client avatar, update and upgrade your website, and update and increase your marketing.
All that is worth it when you think about the impacts of 2x your take-home income and 10x the assets you build for future needs.
That client I mentioned? The final trigger that allowed her to make the leap was when I asked her if she’d take money out of her teenage son’s college fund and give it to her clients.
“Of course not! Never!” was her indignant response.
I replied, “Guess what, you already are.”
That’s all she needed to hear.
The important thing is to consider why you’re doing what you do, and realize this is something worth overcoming your emotional roadblocks.
Empathy
This is a tough one, especially for therapists, because empathy is an intrinsic attribute of a good therapist.
What made the difference here was asking my client the following. “If you could do all your work pro bono, could you help everyone who needs your help?” Of course not. You have only so many hours in the day and so many days in the year.
“If you could do all your sessions at $10/hour, could everyone who needs your help afford you?” Again, no. No matter how much or how little you charge, if it’s not free some clients won’t be able to afford you.
So, if you can’t help everyone, no matter what, and even charging $10/hour not everyone can afford you, realize that you can’t provide a solution to everyone.
In fact, doing that isn’t your responsibility.
Worse yet, if you try too hard, you’ll take on more than you can do well for very long. The result will be (a) you won’t be at your best for each client each time you meet, and (b) you’ll burn out, leaving your clients without your help.
Instead, charge what you need to, and consider offering discounts to a few clients who really need it, rather than discounting for everyone (including clients who are far better off than you and your family).
The Bottom Line: Undercharging Costs Your Family and Your Clients
If your profit margin is low, increasing your rates modestly can double your profits and 10x your assets. If your margin is high, you’d need to increase your rates much more to achieve the same outcome. Either way, if you’re like almost all my clients, you’re under-charging and need to rethink things.
Charging what you’re worth can be emotionally challenging, if not outright frightening. You will need to overcome one or more emotional roadblocks.
But it’s worth it. It can potentially transform your family’s future, as well as your ability to help clients in an optimal and sustainable way.
Don’t you owe it to yourself and to them?
Frequently Asked Questions
How can a small business owner double profits without working more hours?
Raise your rates. When expenses stay roughly the same, a rate increase flows almost entirely to profit. In the article’s example, going from $125 to $150 an hour on the same 1,000 billed hours nearly doubles annual profit, from $25,000 to $49,000.
Why do small business owners undercharge for their services?
Opher Ganel points to three emotional roadblocks: impostor syndrome (“Who am I to charge so much?”), fear that clients won’t pay more, and empathy for people who can’t afford higher rates. He says almost all of his clients undervalue their services and the difference they make.
Will I lose clients if I raise my rates?
Probably some. The article acknowledges that some clients willing to pay $80 an hour won’t pay $150, but argues others will, and new clients will come who value what you do. You may need to rethink your ideal client, upgrade your website and increase your marketing to reach them.
How do you raise your rates when clients can’t afford them?
Recognize that no rate lets you help everyone: even working for free or at $10 an hour, your time is limited and some people still can’t afford you. Opher suggests charging what you need and offering discounts to a few clients who really need them, rather than discounting for everyone.
Is a low profit margin or a high profit margin business more affected by a rate increase?
A low-margin business sees the biggest relative effect: a modest increase can double profits and grow assets about 10 times faster. A business that already has a high margin needs a much larger increase, such as $80 to $150 an hour in the article’s example, to achieve the same outcome.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the author
Contributing Writer, Wealthtender
My career has taken some unexpected turns, from earning a PhD in experimental high-energy physics, to conducting cosmic-ray research in Antarctica, to supporting NASA projects and programs, to running my own consulting business. I also run several other small businesses and help my wife run her Marriage and Family Therapy practice.
Those experiences taught me to question assumptions, think critically, and recognize that real-world decisions of any significance rarely have simple answers that apply to everyone. Today, I bring that perspective to writing about personal finance. Drawing on my analytical background, business experience, and research, I explore financial decisions, challenge conventional wisdom, and help readers understand the tradeoffs that can affect their financial well-being. To complement my own research and experience, I also weave insights from financial professionals into my articles, drawing on their expertise and real-world experience helping clients navigate financial decisions and challenges.
At medium.com/@opher-ganel, you can read more of my articles and subscribe to receive email notifications when new ones come out.