How to Price to Pay Yourself and Cover Costs

Pricing Strategy
Photo by: Alexandria Hinders

Have you ever wondered how to price to pay yourself?

The thing is… pricing is often the bane of every creative entrepreneur’s existence, am I right? 😅 What if I told you there’s an easier way to make sure you know how to price to pay yourself what you need and to plan for outsourcing and investments in your business while also cover all your costs?

If we were sitting in a coffee shop chatting business, I would want to look you straight in the eyes and do everything I could to get you to believe that you really, truly, positively can understand the numbers in your business regardless of your personality or ability to do mental math in your head. I am not a math or numbers person. I literally had a neighbor kid who was a grade below me tutor me through high school math, and yet now I understand and control the numbers in my business with confidence.

I’m going to start by letting you in on a super embarrassing part of my entrepreneur journey. Something that makes my stomach turn and my face flush. This part of my story is something I have to live with, but is a big part of my heart and mission to help creative entrepreneurs like yourself avoid the mistakes I made early on.

How to avoid mistakes in pricing and paying yourself

I worked a full-time day job right out of college for 3 years, where I started with an annual salary of $40K. Already a few years into my business at this point, I was also working my side-hustle at the time. This was the most money I’d ever had flowing through my hands, but now? Financially, I have nothing to show for that time. In a constant cycle of money-stress, wondering how I was going to cover costs, blaming my lack of natural number prowess and crying over seemingly impossible dreams of going full time in my business was the norm. HOW do people do this, I was constantly wondering.

I didn’t know my numbers at any given time. Didn’t really save for taxes or upcoming expenses. Did my taxes wrong. Spent way. too. much. and didn’t plan well. I obviously NEEDED that beautiful $100 floral camera strap, right? 😬

Here’s the truth

The cold, hard truth is that this part of my story was my fault and it was completely avoidable. Ultimately, I believe my financial irresponsibility is what kept me from going full time in my photography business sooner and I’m betting you’ve experienced something similar.

Have hope, my friend! Getting control of your business finances and pricing is DOABLE. Even if you’re not a numbers person. Even if spreadsheets give you the heebie jeebies, you can do this. I make mine pretty to ease the pain and consistently help my clients get this handled and the incredible FREEDOM they feel when they do is worth more than all the lattes in the world. And that’s saying something coming from me! 😉

This approach to pricing is different than most and it starts with your life. I always encourage my clients to base their pricing on their life, not just on the pricing of their competitors. Sure, we need to be aware of our market, but I believe we have all made a mistake by basing our pricing *solely* on the competition and then wondering how on earth people actually make a living doing this! You can’t make a living picking a random number for your pricing. Instead, we’re going to dive into how to price to pay yourself and cover costs. First, you need to base your pricing on facts, starting with your personal budget needs, aka: your salary.

The 5 numbers you need to know to price your product or service

SALARY

The first number you need to know how to price to pay yourself is your salary. From DAY ONE you should be paying yourself, even if it’s just $10 a month.

You might be questioning if your business is “ready” to pay you. The most common misconception I hear over and over is that we need to be putting as much money as we can back into our business at the beginning. Although I do agree that in the early days of business, we need to prioritize investing in building our business, we also need to prioritize right and healthy habits from the beginning. And that means paying yourself.

In order to make ends meet and take your business full time, you’ll need to know what your personal expenses are so that you can pay yourself enough to cover that. If you don’t yet have a personal budget, that’s step one! Need help getting started? Head to my How to Start Budgeting for Life as a Biz Owner blog post and I’ll show you the way!

BUSINESS OVERHEAD

The next number you need to know is your cost of doing business or your business overhead. This will include anything you spend in business, whether you have any paying clients or not. A few examples of overhead expenses would be client management systems like HoneyBook, website fees, insurance, tax accountant, virtual assistant, online scheduler, Quickbooks, Flodesk, education, etc.

Side note: If you have business debt, you should pay it off ASAP, but at minimum, your monthly payments should be included in your overhead.

JOB SPECIFIC EXPENSES

These are the expenses you incur *only* when you take on a client. This includes things like credit card transaction fee, booking gift, a second shooter for wedding photographers or printing costs for designers. Everything from the coffee you buy at a consultation to the card you send after the service should be included and fully covered by your pricing! This is key in learning how to price to pay yourself.

TAXES

Ahhh, the curse word of the entrepreneurial world. Those sad numbers you see leaving your account every quarter or year can be incredibly depressing, but it’s just the way it is. So we may as well get on top of it, saving as we go, so that tax time doesn’t hurt! Okay, it may still hurt a little, but at least you’ll be prepared for it! 😉

There are two types of taxes you need to account for in your business. Income and Sales tax.

How to outsource your income taxes

Typically 30% of your net income is the recommended percentage to save from your income for taxes, but I prefer to set aside a percentage of my gross income, which your tax accountant can help you calculate based on your income level and expenses. (Always overestimate this percentage so you have a little wiggle room at the end of the year) If you don’t already have one, you need to hire a tax accountant TODAY.

There are so many details and law changes that are just impossible to know as an entrepreneur that could save you money! The fee you’ll pay to have a professional do your taxes is worth its weight in GOLD! Seriously, friend. Hire a professional, and I mean an actual professional tax accountant. Not a big, impersonal company with an automated online form. Hire someone you can talk to in person to make sure your taxes are filed correctly and with wisdom!

How to pay sales tax

Sales tax is typically around 6-8% and doesn’t apply to every product/service as each state and even each county does this differently. Call your state Department of Revenue for specifics as to your product or service and your local requirements. Hear me say this. Do not just rely on other entrepreneurs in your area. Get the facts from the belly of the beast and make sure you’re handling your taxes correctly! It’s important to note that sales tax is an amount you charge to the client in addition to the price of the product or service.

*Note: If you’ve never paid sales tax, you’ll need to apply for a sales tax permit first. Again, call your state Department of Revenue for the steps to take to get this set up.

WORKLOAD CAPACITY

This might just be the *most* overlooked piece to building pricing that actually serves you. You NEED to take into account your physical, emotional and mental capacity for how much you can and want to work.

The best way to determine this is to get ultra clear on both your work hours and your workflows. This means figuring out the time it takes you to fulfill your contracts and decide how many clients or projects you can actually take on at a time while serving them well, still having a life and managing the behind the scenes of your business.

I will tell you that this is not easy and you’ll need to continually observe this and tweak as you go. Always, always overestimate how long work will take and if you don’t already, start tracking your time so you can better plan for the future.

Putting it all together to build your pricing

Now that you’ve figured out those 5 numbers, you have the items you need to know how to price to pay yourself. You will probably need to adjust the numbers a few times before you land on your final pricing and you may not be able to start charging this new pricing right away if it’s a big change from your current rates. But that’s okay. It’s a process!

In order to make sure you pay yourself, cover all your expenses, and still have a life, you need to know how many clients or sales you would need to take on to cover those costs at your current rates. From there, you should compare with your capacity and needs to determine if you need to raise your prices or if you need to market for more work.

Use my Annual Estimator Spreadsheet Template to help with this!

Freebies to Help you Know How to Price to Pay Yourself

So let’s sum it up, shall we? In order to take your side-hustle full time or reach your big financial goals (like bringing your spouse on in the business or buying a house) you need to pay yourself a salary that covers your personal financial needs and goals. After determining your salary needs, it’s time to look at your cost of doing business or overhead costs and know exactly how much you spend to keep the business afloat.

In addition to your overhead costs, you also need to know what costs you incur when you take on a client or make a sale. These job-specific expenses always need to be covered in your pricing. Whether we like it or not, we all have to pay taxes, so make sure you hire a tax accountant to help determine what percentage of your gross income you need to set aside. And finally, taking your personal capacity and all those costs into account, you’ll need to determine how many clients or sales you need at what rate to cover #allthethings!

Because I needed something to help me figure all this out, I created spreadsheets that do most of the work for me! Make sure to grab my free Google Drive Accounting Templates to help you through this process!

Why It’s Important to Know How to Price to Pay Yourself 

When you’ve run the numbers and have your ideal pricing figured out, you can start taking steps toward that with confidence! You have all the information you need to say, “Here’s where I am now, here’s where I need to be, and I’m going to take the next X years to get there.” Because you know your pricing is based on real data that reflects your needs, you can be confident in your pricing. It’s no longer arbitrary, you have actual numbers to back it up. This should also give you the confidence to say no if someone asks for a discount! Because I believe you should be able to build a business you love that also pays the bills! You’ve got this, friend!

Pricing Increase Disclaimer: If you’re increasing your prices, your experience needs to reflect that. A premium rate should be reflected in a premium experience. Any additional expenses you would incur to improve the experience should be built into your new pricing.


Val Duvick

Val is a wedding photographer turned not-so-typical business coach helping creatives become healthier, happier, and more empowered women who love the business they run, the people they serve, and the life they get to live in the process. Val is an ENFJ, Enneagram One, two-time girl mama, wife to Mark and latte connoisseur.