Your Worth: The Pains of Paying and Getting Paid


One of the more confusing aspects of entrepreneurship is defining your worth. By that, I mean the appropriate pricing of your time, product, or service. Sometimes, this is pretty straightforward; for example, if you open a pet supplies store, you’ll determine the cost of your products based on your purchasing costs, rent, utilities, and other overhead and marketing expenses. But what do you do when you are selling a product or service based on your knowledge or expertise? The formula becomes a bit trickier when your business is not exactly black or white, and self-doubt will inevitably creep in and eat away at the profit margin.

Based on my business coaching experience, I have found that the most common source of frustration lies in the confusion between the cost and value that a product/service provides.

“Understanding that difference is not only super beneficial for setting the right prices for your business, but also for making smart purchasing decisions if you happen to be a knowledge junkie like me. ”

There are two basic pricing models for determining the price of your product and service:

  1. Cost-plus pricing
  2. Value-based pricing

Cost is a variable, and it depends on different things like raw materials, market conditions, the time required, overhead expenses, etc. Value is what the consumer believes the product and service are worth. 

When you work with the cost-plus based pricing model, you simply add a markup that takes direct and indirect costs, as well as perceived value, into account, just like my pet supplies example. The value-based system is more complex and often creates a stumbling block for many entrepreneurs, because it must reflect what the customer is willing to pay, based on how much they believe it’s worth, without under or overselling your time and skill. So let’s take a closer look at this pricing model. 

If you are a freelancer, virtual assistant, coach, or consultant of any kind, you will inevitably run into this question: What should I charge for my service? You want to make sure you run your business profitably and sustainably, and you want to convey value, confidence, and professionalism. This is indeed a fine balancing act and requires some serious consideration. I have met people who fall on either side of that important balance; on one side is the person who thinks they are worth $100 per hour and charge that rate for a task I could have easily outsourced for $20. On the other side are entrepreneurs who put in hours for free because they don’t know how much their time is worth. 

Worth and skill are different things. Someone may have an undeniable skill in marketing and as a consultant is most definitely worth $100+ per hour. But when that person confuses consulting services with task-oriented work, their hourly rates can quickly get out of hand. Their clients can find themselves paying $600 for a task that should have cost no more than $60. 

How then do you measure worth versus skill? The difference is between applying a skill to an overall consulting strategy versus a specific task. Let me give you an example. The person who dreams up your marketing campaign or social media strategy is applying their creativity, knowledge, and uniquely acquired qualities or attributes to deliver a solution measured in value received. The person who creates your logo for this campaign also uses their creativity and knowledge for a solution that can be easily reproduced by other graphic designers and can be measured in time and raw materials. 

So, let’s say you have a knack for design and marketing and you have a degree in coding. You decide you want to create an online business that helps other business owners with their online strategy. You plan to (hopefully) design a package that takes care of all aspects of branding, web design, and online analytics (value-based pricing). However, you may also offer standalone rates for the business owner who likes your design skills but doesn’t need a website. The price for ‘one-off’ design projects should be based on a cost-plus pricing model rather than a value-based pricing model! 

Both models require you to do some research as to what current market prices are for similar services offered, based on your experience and skill. I have found that the biggest disconnect for freelancers is an inability to determine the difference between when to use cost-plus versus value-based pricing.  

Now that we’re clear on the difference between when to charge cost-plus pricing and when it’s appropriate to refer to a value-based model, let’s take a look at how to figure out your worth under the value-based pricing model. First, grab a blank piece of paper and pen, because this cannot be done in your head. You could of course just run with a number that rolls off your tongue or matches your numeric symbolism, but if you want to go about it in a more scientific manner, here are my recommendations:

  • What do business owners who offer similar products and have comparable experience charge?
  • What is the first number (hourly rate) that comes to your mind? It has to be a number you could comfortably say out loud to someone. This is important! There is a difference between what you can put on paper and what you can say out loud. For you to be able to build your business with confidence, you need to be able to speak about your offers. If you cannot speak about the price, you need to go back to the drawing board. 
  • Does the number your competitors charge match the number you are comfortable speaking out loud? If so, great. Start there–you can always increase your rates as your business grows, but let’s agree that having a paying customer is better than no customer at all. Your pricing will grow with experience and confidence, and, more importantly, you will have a client base you can survey to determine the value they found and what that value would be worth to them. 

Managing money in and money out are two of the most important aspects of your business. If you are feeling uncertain about setting your price, contact me today for a personal consultation.