You're Not Busy, You're Underpriced
Key Takeaways
- Variable costs grow with every job you take on, while fixed costs stay the same, and understanding this split is crucial for effective pricing.
- When comparing a 10% growth strategy, raising your prices generates roughly $75,000 in additional profit compared to just $30,000 from adding new customers.
- Focusing on 'raising prices vs adding customers' helps digital entrepreneurs and shop owners maximize their bottom line without scaling their workload exponentially.
- A healthy shop with a 40% margin can actually afford to lose 20% of its customers after a 10% price increase and still maintain the exact same total profit.
- Moving into a higher tax bracket as a result of raising your prices is always a good problem to have because your net take-home cash significantly increases.
Same 10% growth, very different results. In this episode I show how adding customers puts about $30,000 more profit in your pocket, while raising prices puts about $75,000. I also walk through what a shop owner keeps after taxes.
Get the full breakdown and book your year-end review at contentcreatorsaccountant.com/review
In this episode, I cover:
- Why variable costs grow with every job while fixed costs stay put, and how that split drives all of the math
- The example shop: $750,000 in revenue, 60% variable costs, $200,000 in fixed costs, and $100,000 in profit
- How 10% more customers adds about $30,000 in profit, while 10% higher prices adds about $75,000
- What that looks like after federal tax: about $23,100 versus about $57,400, and why landing in a higher bracket is a good problem to have
- The cushion: a shop with a 40% margin can lose 20% of its customers after a 10% price increase and still earn the same profit
This week’s step: Split your costs into variable and fixed, run your cushion number, and write down the price change you’ll make by January 1st.
Mentioned in this episode:
- Jay Abraham, on growing by raising the value of every customer
- Ronald Baker, author of Pricing on Purpose, on pricing based on value
- Year-end business review with me, $199, one-on-one over Google Meet: contentcreatorsaccountant.com/review
Have a pricing or tax question? Send it in and I may answer it on a future episode. Follow the show so you catch next week’s episode.
Frequently Asked Questions
Is it better to focus on raising prices or adding customers?
Raising prices is generally much more profitable than adding customers because variable costs scale with new business. A 10% price increase yields significantly more bottom-line profit than a 10% increase in customer volume.
What happens to my profit if I raise my prices and lose some customers?
If you have a healthy profit margin (such as 40%), you can lose a portion of your customer base after a price increase—up to 20%—and still walk away with the exact same total profit while doing less work.
How do variable costs and fixed costs affect content creator pricing?
Variable costs scale up every time you take on a new job or client, while fixed costs remain constant. Understanding this split allows you to price your services based on true value rather than just covering expenses.