Funding isn’t Revenue. You Owe it to Your Business to Have Both.

Earlier this week, I was invited to hold a lunch-and-learn at the Regent Park Centre for Social Innovation. The topic was about Social Enterprises – and how even though their mission is to better the world, ultimately they are still enterprises. They owe it to their cause and their constituents to generate revenue. In other words, that they need to make money. We discussed money mindset, finding something to sell, confidently pricing offerings, and more; the core tenet was this: sometimes social enterprises confuse funding with revenue. The two are quite different, in terms of the impact they have on your business. It strikes me that there are many founders in other sorts of startups who might benefit for a refresher on this, also. ​In short, these are the key differences between funding (be it from investors, or from lenders), and revenue (money generated from selling something – a product or a service:

Funding is the fuel. Funders provide it on their timeline, not yours. It has the benefit of using other people’s money, but also the drawback: once they own a piece of your company, their power and motivations can force you in directions you didn’t intend. Use funding wisely and judiciously, as it can completely obscure the reason you initially started your business.

Revenue, on the other hand, is the generator. It is the engine that creates power in your business to make decisions, to choose your direction, and to invest in the future. It provides operating costs, which funding is often not intended (or allowed) to cover. Assuming you’re working at selling and you understand your sales cycle, you generate it on your timeline. You get to harness this resource, and direct its use to your chosen purpose. That means the money serves you and your business – not the other way around.

So, whether you’re a social enterprise, or a pure-play for-profit company, make plans for revenue, and take control of the future of your business.

I’m Megann Willson, and I’m one of the partners here at PANOPTIKA. That means “see everything”, because we work with our clients so they can see everything they need to know to make better business decisions. You can also find us on LinkedIn, on Twitter, or on Facebook. If you have a challenging customer project, give us a call and let’s talk about how we can help. And if you’d like to see more content like this every week, click the button below. 

Are you charging enough?

Pricing. We can’t tell you the number of times we’ve heard business owners or product managers wrestle with the question of how much to charge for what they sell. This can be especially difficult if you are in a service-based business, where, even if you’ve created packages, you’re ultimately selling your time. What if the client takes longer to make decisions than you thought? What if they aren’t good at deciding what they want, and their brief to you is terrible? What if they expect unlimited, time-consuming phone calls…for free?

Like every facet of your strategy, pricing decisions are ultimately on you. With a physical product, you can look at the costs associated with producing or acquiring the product, storing it, selling it, and shipping it to the customer. It’s worth looking at “product you” the same way. One big mistake we see with new consultants or service providers, is that they charge an hourly rate that sounds high enough…if they’re working 40 hours a week, for 40+ weeks a year. If you’re a solopreneur, this simply isn’t realistic. You need time to run your business, doing bookkeeping, accounting, and paperwork, or meeting or conversing with partners who do those things for you. You need time to sell to your customers (or you need to make enough on your service to pay a sales person to help). You get the picture. So how do you know the appropriate rate to charge? What if the client schedule has slippage or they delay the start of a project, so the dates when you thought you would be making the income are “missed”?

First, think about your costs – whatever overhead you have, whether it’s rent, your cellphone bill, professional associations, networking meetings…the list could be endless, if you let it. Then consider how much you want to make every year, net of fees or taxes. Add it up. How much vacation will you take? How much selling time will you need? (A good rule of thumb is that you, or someone, will probably need to spend at least five hours selling for every hour you deliver, especially with new clients). Divide this by the number of hours you realistically expect to spend delivering the work. That’s your charge-out rate.

What about cost overruns? You can have a series of up-charges for clients who have scope creep every time they come with a project. Truth be told, though, in most cases you want to avoid this, because the aforementioned newcomers to the market will bend over backwards for very little money, in an attempt to build their client base. Your client may come back to you after they’ve been stung by these inexperienced competitors, but they’ll have spent their budget, and you can’t get that project back. Instead, build in some wiggle room that you can live with. In our own case, we let new clients know that we have standard pricing that we apply to projects, and we estimate the scope according to their brief. When we have more experience working together, and they become a repeat customer, we will consider more favourable pricing, but we never discount out of the gate. We also explain at the start that the pricing we charge is adjusted for their second project – if they turn out to have an issue with scope-creep, we’ll raise the rate we charge them in future. This means we can stand firm on the charge-out rate, and make it up on the honour system, later. Of course if there are costs that have been incurred, like space rentals, that had to be paid twice, we expect them to cover those costs.

Explaining why a price has gone up for project two isn’t always easy. When you need to do this, consider using the airline seats discussion. Although they may get their weekly or monthly paycheque no matter what, as a service provider, you get paid when you work. If you have blocked time and turned down other clients for that time period, you can’t “sell that seat” to someone else. The risk is that they will go elsewhere, to someone who is willing to under-charge for the work involved, but wouldn’t you rather have that, and search for a client who’s willing to pay what you’re worth?

If you’re finding it hard to make time to think about strategic questions like these, because you’re so busy working in the business, that you can’t work on your business, let’s take a look at your strategy. There’s definitely a better way. I’m Megann Willson, and I’m one of the partners here at PANOPTIKA. Let’s get you the money you deserve.

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