I am a reluctant business owner. I started working for myself in 2015. I didn’t start my business because I wanted to get rich; I started it because I was sick of being broke and thought I could convince customers to pay me more than employers. I also wanted to build an asset I owned instead of helping build someone else’s asset. So far, this bet has worked out.

A lot has changed from when I first started. I’m not broke anymore (thank you to every person who has helped me change my financial reality, including myself). I want to build wealth and uplift others. I especially want to help create economic stability for those around me who are helping me build my businesses.

You know how people say the cliched thing about their dog recusing them instead of them rescuing their dog? Or when teachers say it’s truly the students that teach them? Corny, yeah. But I’m here to report that the same thing has happened to me. I’ve helped many businesses and individuals with their finances over the years. But they’ve also taught me a lot about pricing and building a sustainable business. 

Here are all the lessons I’ve learned from all the business owners with whom I’ve had the pleasure of working. They helped me build my sustainable business first by being paying customers, but I’ve also had the unique viewpoint of watching them grow their businesses from the inside out. Watching and playing a tiny, supporting role in other people’s success has been really fun.

It’s important to note that although I understood the inner workings of a company from a financial perspective, I didn’t understand how to drive revenue. So here’s what I’ve learned so far.

Don’t be the cheap option. Consider the $1 Oyster.

Years ago, I found myself at a stop light in Los Angeles, intrigued by a bar sign that read “$1 Oysters.” It made me question if a $1 oyster was a great deal or guaranteed food poisoning. The price seemed suspect. “Why are they so cheap?” I thought to myself.

From a business perspective, I understand how the $1 oyster works. It’s a lot like Costco’s $1.50 hot dog. When done intentionally, businesses choose to lose money on one thing because they know it will get customers in the door. And once they’re in, the company expects to make money from more profitable items.

In the bar’s case, you come in for $1 oysters but end up spending more on alcohol. And with Costco, you might save money chomping on a $1.50 hot dog, but you’ll likely leave with a cart full of items that will set you back $300.

In the early days of my business, one of my biggest problems was the fact that I only sold the $1 oyster. I offered bookkeeping services at rates so low that it was unsustainable. In those first few years, I learned about all the problems that can arise from undercharging by working with my first cohort of clients.

First, I couldn’t afford to hire quality talent. When you aren’t making enough to invest in higher-quality inputs, the output isn’t as excellent as it could be. And when the quality is meh, you can’t justify charging more for a mediocre service.

Since I didn’t make much of a profit on each engagement, I had to take on more clients to earn more. And if you’ve ever had too many clients, you’ll know that you (and your team) can get stretched thin. This is when mistakes can happen because there is too much to juggle. And resentment and frustration can build up because everyone is overworked and underpaid. 

To make things worse, when I was the cheap option, the clients who are most price sensitive — those that value cost over quality — would tell other folks who value price above all that I was the cheap option. And that’s how one gets caught in a vicious cycle of undercharging.

What chronic problems arise from undercharging? Underpaying yourself and your team, assuming you can even afford a team. Potentially hamstringing business growth because we can’t afford to invest in it. Not sticking to the one thing we’re good at because we need to chase income from other revenue streams. Undercharging also puts one at risk of falling into debt and being unable to build a cash buffer or emergency fund. And sadly, the most significant risk is the business not surviving in the long run.

The first step in stopping the vicious cycle of undercharging is awareness. When I started working with bigger businesses earning a sustainable profit and charging a premium for their work, it forced me to look at my business differently. It made me realize that if my clients could make hundreds of thousands to millions of dollars selling creativity or sometimes frivolous products (no disrespect), then I could make a good living selling a necessary service like bookkeeping.

Folks take you more seriously when you charge more.

This is the other side of the $1-oyster-coin and another lesson I’ve learned from clients over the years. If a $1 oyster can be perceived as low quality, then a higher-priced oyster may be perceived as higher quality, regardless of whether or not this is true. We see this with other restaurant items like steak, scotch, wine, etc. I’m sure we aren’t even entirely conscious of how this bias impacts our perception of quality.

Oftentimes, when a client pays more for a service or product, they are literally more invested in the outcome, which can cause them to take you and your work more seriously. Higher prices might even connote a sense of exclusivity or prestige. Consider how many folks perceive luxury, often aspirational goods like a designer bag. The hefty price tag mentally tips the scales towards taking the brand more seriously. I’m not saying everyone should offer a luxury or exclusive product or service. I’m just using this as an example to show the line our brains draw between quality and price.

Let’s look at the other side of the spectrum: if you’ve ever decided to go the cheap route on something and subsequently found yourself uttering the words, “You get what you pay for,” then you have seen yourself have this cognitive bias firsthand.

When I started working with bigger clients, that charged a lot for their work, I did take them more seriously as business owners. Bidding on bigger projects forced me to start taking my business more seriously too. So I increased my rates. From then on, I noticed that prospects and clients most definitely took me and my business more seriously when I started charging more.

Price your work based on the value it creates for your clients and customers.

Most of our clients are in the business of helping other companies make money (this is what B2B means, by the way - business to business). Our clients are production companies, marketing firms, and branding agencies that create things like marketing campaigns, commercials, and websites that all drive revenue for their clients.

Clients that make the most profit on these productions tend to price their offering based on the end value it provides to their customers. For example, take the service of creating an editorial campaign for a product line. One approach to bidding on that job is to consider how much time it will take to do this work and price the job accordingly. Tme is always something to take into account, of course. But another way to look at price is to understand how much value you create for your customer.

For example, an excellent editorial campaign can drive revenue. Let’s say, in one example, the campaign helps generate $250,000. The company that created the campaign might want to consider charging a price rooted in the value it creates for their customer ($250k!) versus the time and costs it would take to create the campaign.

The other layer to consider, which can be controversial, is that sometimes the work you produce can be more valuable for one client over another. For example, the editorial campaign for a small business compared to a campaign to promote a movie for a huge household brand will have different results. The first campaign might drive $20k in revenue for the small business and $200k for the big blue chip brand. Even if the project requires the same amount of work for you, the value it creates for each client varies considerably, which brings me to the next concept.

The price you charge means nothing if you can’t find customers willing to pay.

Charging sustainable prices for your product or service matters, but it won’t solve the problem of not having enough customers. It’s more typical that younger, newer businesses struggle the most with finding customers, but I have seen more mature business owners struggle with this, too. One reason is that when folks start to get paid work, they focus on delivering that work and lose focus on finding new work.

Every business has a pool of potential customers. The pool itself is always limited. It could be limited in a number of ways. For example, location is a limitation for brick-and-mortar businesses. Industry can be another limitation.

Only some people in your pool of potential customers are paying customers. In other words, paying customers are only a portion of the entire pool. It could be that some people in the pool are future customers, perhaps when they earn more money.

Increasing your pool of potential customers by expanding your pool is one way to grow your business. Another strategy that works concurrently with expanding your pool is broadening your offerings to current (and potential clients). We can torture the analogy by saying instead of just selling ice cream to the pool of potential customers, you can start selling pretzels and sunscreen too. Some customers might buy all three, while maybe some only buy one or two of your offerings.

This last concept of increasing offerings and creating an ecosystem is the phase I’m in on my journey with small business ownership. As I expand and work with more clients across various services, I’ll learn and share more along the way.