Episode #24 Unlocking Your Worth: Why Being the Cheapest is a Losing Game

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Welcome back to episode number 24!

The last few episodes we’ve been talking about content creation and posting strategy to attract new clients. How’s that going? Let me know – I really would like some feedback on those episodes!

So, today, we're going to dive into a topic that's not just relevant but transformative for every business owner out there: money mindset. If you've ever found yourself lying awake at night, stressing out over your rates, or if you've ever felt that pang of guilt when sending out a bill to a client, today's episode promises to be a game-changer.

My main go-to people for money mindset are Denise Duffield-Thomas and Mike Agugliaro. I’d love to know who you follow for money mindset.  Denise wrote the books Get Rich Lucky Bitch and Chill and Prosper. Mike is the founder of FuDog Group.

I know when I opened my first business, I vowed to be different than my competitors. I was going to be affordable. If I wouldn’t pay my rates, then they were too high. I knew I’d be on a shoestring budget, but I was used to being an underdog. I had left a Big 4 CPA firm where I was being billed out at $500-$600 per hour which I thought was outrageous and this was in the early 2000s.  

My first tax returns, simple 1040s, I charged $75. I also printed the returns and put them in a 3-hole report folder. I included pre-addressed and stamped envelopes when clients owed money with the returns. Those costs plus my time to assemble and deliver a return was well above $75 per return.

I quickly realized that at that rate, I couldn’t even afford tax software to actually prepare the returns unless I was cranking out at least 1,000 returns per season. I didn’t realize it at the time, but I was setting myself up for failure. It created a situation where I was burned out, stressed out, and gaining weight. Life was no longer fun.  The sole reason for being self employed was to have freedom, but I just chained myself to my desk by requiring myself to be a high-volume firm.

Here's another thing – that low price? It attracted the people and business owners who were not my ideal client. While my intention was to work with people who were just shy of middle class because I felt they were underserved in the market, my rates were attracting people who saw me as cheap. I felt I was giving them the red-carpet treatment, but they wanted more: returns filed faster, higher refunds and complained that my fees were too high.

It crushed me personally and strained my business.  And, as I raised my rates over time, so many clients left. I was thankful the pain in the ass ones left, but it was such a long road to cultivate clients I loved working with who pay me what I’m worth.

And, while this is my story, I suspect many of you have a similar story. I know. I’ve spoken to so many attorneys when they start out. Actually, I know some who have been around for a really long time who are still charging rates that are not sustainable.  It’s a constant struggle because there’s never enough money in the bank and there’s always too much work to get done.

So, let's address money mindset today, shall we?

But before we dive deep, let's set the stage. As we've discussed in previous episodes, our mission is unwavering: guiding attorneys like you towards a future that's not just about profits, but about purpose, passion, and a sense of fulfillment. And believe me, understanding your worth and charging accordingly is a pivotal step in that enriching journey.

Let’s start with reasons to charge what you are worth.

Value Perception

Let's start with a simple analogy. Imagine walking into a store and seeing two similar products. One is priced significantly lower than the other. Your immediate thought? There must be something wrong with the cheaper one. The same psychology applies to services. When you charge below market rates, potential clients might question your capabilities. Price, more often than not, is a direct reflection of perceived value.

Sustainability

Let's talk numbers for a moment. Every business, including your firm, has overhead expenses. There's insurance, utilities, software subscriptions, and so much more. Charging a fair rate ensures you cover these costs comfortably, leaving room for profit, growth, and a cushion for those rainy days.

Attracting Ideal Clients

Setting your rates at market value isn't just about money; it's about the message you're sending out. It tells potential clients that you're confident, experienced, and worth every penny. This, in turn, attracts clients who are serious, committed, and value quality over bargains.

Professional Growth

Think about the bigger picture. With a healthy income, you can invest in yourself. I’m talking about the courses and programs beyond your required CLE that you've been eyeing, or perhaps it's attending international conferences where you can network with the best in the business. Charging appropriately gives you the resources to continuously elevate your practice.

Respect and Recognition

In the legal world, reputation is everything. When you charge what you're worth and stand firm on your rates, you're not just setting a price; you're making a statement. You're telling your peers, competitors, and clients that you're a force to be reckoned with.

Now, let’s talk about the benefits of billing at sustainable rates.

Financial Security

Let's face it, financial stability isn't just about luxury; it's about peace of mind. When you charge market rates, you're ensuring a steady cash flow, allowing you to plan for the future, be it expanding your firm, investing in assets, or even planning that dream vacation to the Maldives.

Work-Life Balance

Money isn't just currency; it's time. When you're compensated fairly, you don't have to overwork. This means more time for family dinners, weekend getaways, or simply curling up with a good book.

Higher Quality Clients

There's a certain satisfaction in working with clients who respect your expertise. Charging market rates often means you're dealing with clients who understand the intricacies of the legal world, ensuring smoother interactions and more fulfilling case resolutions.

Reinvestment Opportunities

Think of your firm as a plant. With proper nourishment, it'll grow. With a healthy profit margin, you can think of hiring more staff, investing in cutting-edge technology, or even expanding to a new location.

Personal Growth

Beyond the four walls of your office, there's a world waiting to be explored. Financial stability means you can indulge in personal growth, be it a pottery class, a wine-tasting course, or even a month-long sabbatical to explore Europe.

I think it’s important that while I just mentioned some advantages of adequate rates, some detriments were implied. So, to be clear, let’s flip the script a bit and specifically state the detriments of charging low rates.

Financial Strain

Constantly being in the red isn't just stressful; it's demoralizing. Charging too low means you're always playing catch-up, leaving little room for innovation or growth.

Overwork and Burnout

There's a physical cost to undercharging. To make ends meet, you might find yourself buried under a mountain of cases, leading to long hours, stress, and eventual burnout.

Lower Quality Clients

Ironically, a lower rate might attract more problematic clients. Those who don't value your services might be more demanding, leading to strained client relationships and potential conflicts.

Stunted Growth

Every business needs to evolve, adapt, and grow. With limited earnings, there's a cap on how much you can reinvest, leading to stagnation.

Diminished Self-Worth

This is perhaps the most significant cost. Continuously undervaluing your services can erode your self-confidence, leading to self-doubt, anxiety, and a feeling of being stuck in a rut.

As Denise Duffield-Thomas wisely puts it, "Your money mindset determines your earning ceiling." So, ask yourself, where have you set your ceiling? Remember, every time you undervalue yourself, you're not just affecting your bank balance; you're shaping your future, your dreams, and your legacy.

Listener’s Question of the Week

Now it's time for our listeners' question of the week. 

This week’s question is from Ricky. Help! I am looking at my Quickbooks reports that my bookkeeper just sent me. My P&L says I have a net profit this year of over $200,000 but my bank account is in an overdraft position right now. How is this possible to be profitable but without money in the bank?

Oh my Ricky! Let’s see if I can offer some help. I have seen this situation so many times. First, I would ask your bookkeeper if they have reconciled all of your asset and liability accounts through the most recent month-end. Review all unreconciled transactions to determine if they are valid transactions – meaning they are not duplicates and confirm that they are still outstanding per your bank’s records.

My suspicion is that there is at least one extra account on your books that is holding transactions that are being posted to your books in error.  This will happen often when you connect other apps and programs to your QBO file. For example, if you use Clio or MyCase, and I’m not singling these out, but just throwing out possible programs you may be using, are they syncing correctly to QBO? It’s possible they were set up incorrectly or you have changed your chart of accounts in QBO but didn’t update the sync setup correctly.

What can happen is your billing program creates a bill. It posts it to QBO correctly with the new bill posting in your A/R and revenue.  I don’t want to get off track with whether you pay tax on a cash basis or accrual basis. So, please stick with me here.  But, when the payment comes in and posted to your billing program, it may not sync correctly to QBO. What if it posts the increase in your bank account and to revenue a second time? Now, your A/R is too high and so is your revenue because what should have happened is your A/R should have decreased by the amount of the payment received and your bank account would have increased. The result is a net profit number that is overstated. And, if you are using your P&L to make decisions, you are using false numbers.

Making sure that every asset and liability account on your books is reconciled every month-end and confirming that unreconciled transactions are correct in your books will quickly identify when there’s an issue that needs to be fixed.

I hope this helps, but if there are more questions or follow-ups, do not hesitate to reach out. Also, if you have a question you would like me to answer, you can email me at [email protected]. Thanks!

Inspirational Quote

This week’s inspirational quote is from anonymous, “You will realize you are enough when you recognize there is no measuring stick. It’s all made up. The ruler itself doesn’t even know the rules.”

Final Thoughts

Mindset is a powerful tool – it’s great for creating good in your life but it can hold you back. I’m not even talking crazy things like voodoo or magic, but just simply believing in yourself can take you a long way. 

I’ve had too many conversations with business owners afraid to raise their rates for fear of losing clients, but the truth is, if you are not profitable, your business is going to eventually close. 

The hardest thing many professional service providers I’ve spoken with complain about is fear of being judged as too expensive. I’m telling you that it’s not ok for you to believe that. It’s not ok.  Those who say that most likely are not business owners and do not understand what costs are involved in running a business.  That is one of the most powerful reasons I love the cash management system Profit First.  It forces a business to raise rates to a level that creates profit for the owner and a reasonable salary too.

If you are feeling like your billable rate is too low, I have a spreadsheet – but don’t be intimidated by a spreadsheet. It’s purpose is to do the math for you. There’s an area to input your budget and how many hours a year you want to work. Then, it spits out your minimum hourly rate needed to break-even.  If you want to grab a copy, click HERE.

Before I sign off for today, for listeners of my podcast, you have an opportunity to get a copy of my newly published book for free! 

“Stop Struggling and Start Thriving: A Guide To Transform Your Law Firm”

Download the Free PDF Now 👉 CLICK FOR FREE BOOK

Al it is available for purchase on Kindle or paperback HERE.

If you have any questions about today’s episode, feel free to comment if you are watching on YouTube or send me an email to [email protected].

If you know someone who might need to hear this information, please share this episode with them or if you are on YouTube, tag them below! 

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Did you enjoy this episode? Please consider leaving a review. 

And before I go – remember profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year!

Thanks, and have an amazing day!

Let’s talk about the importance of having the right money mindset and charging what you're worth as a business owner. I share my personal experience of starting my own business and the mistakes I made by undercharging. Why it's crucial to charge profitable rates, such as attracting the right clients, covering overhead expenses, and achieving financial security. I also highlight the detriments of charging low rates, including financial strain, overwork, and diminished self-worth. 

By the end of this podcast, you'll have a better understanding of the impact of your money mindset on your earnings and the steps you can take to charge what you're worth.

For those interested in the template I mentioned in response to the final thoughts segment, you can grab your copy HERE.

And, for listeners of my podcast, you have an opportunity to get a copy of my recently published book for free! 

“Stop Struggling and Start Thriving: A Guide To Transform Your Law Firm”

👇 Click the link to download your book today. Let's pave the path to profitability together!

#StopStruggling #StartThriving #LawFirmProfitability #eBook

Download the Free PDF Now 👉 CLICK FOR FREE BOOK

Or it is available for purchase on Kindle or paperback HERE.

Be sure to follow and subscribe to get notifications for future episodes!

✉️ EMAIL: [email protected]
📞CALL: (234) 207-5772
💻 VISIT: ProfitScaleThrive.com

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