To be candid, Swall's Associated Services operates at a loss and always has. Not every year is a loss mind you, but if you look at the past 10 years as a whole it is a net loss. This is primarily due to the feast/famine nature of reactive IT support (client's only call when something is broken) and that I have been holding down our prices artificially up until now. I have needed to increase the prices drastically for some time now.
What do you mean "operates at a loss"? You wouldn't still be in business after 10 years if you didn't make any money - that doesn't make any sense...
Let me clarify a bit. Every year, except one or two years, the company does post a profit - but what's left over after taxes usually isn't enough for me to live on. By the end of the year I am more in debt than I was the year before. Not by much mind you, but it's still an increasing negative number.
That still doesn't make any sense... doing the math you should make...
In this industry there is a lot of time spent learning about new technologies, researching solutions to uncommon problems, etc. For every hour of billable time there is anywhere from 3 to 5 hours of non-billable work as well. That combined with my additional plans going forward - needing to make time to hire, etc. that ratio will probably get worse during this year. The end result - there's a lot less billable hours in a week than you think.
Then you're probably just spending too much money - you need to budget better.
I probably could budget better - but those of you that know me personally know that I don't live rich. I own one pair of shoes, four pairs of pants, and enough shirts to go with them to last me two weeks before I have to do laundry. I don't go out to concerts or to the movies, I don't drive a fancy car, I haven't had a vacation or any length in more than 10 years and yet I still haven't found the money in my personal budget for health insurance or savings of any kind.
Why have you taken so long to raise prices then?
Good question - I don't know. I have a very deep sense of loyalty to the clients that have helped build my business over the years and I didn't want to raise prices on them. I have consistently raised prices over the years, but unfortunately due to how my business started, many of our oldest clients came in at such low rates that it's been difficult to ratchet those rates up quick enough with only a couple percentage points a year. I ultimately realized I'd eventually be out of business if I didn't just bite the bullet and raise the prices significantly - which is what I'm doing now.
Why don't you just raise prices for new clients and keep your existing clients at the lower rate?
Simply put, there are no new clients and I'm not looking for any new clients right now either. At this point I'm fully booked - in order to take on a new client I'd either have to hire immediately or let go of an existing client. Hiring takes a lot of time and money - neither of which I currently have or can afford without raising prices on our current client base.
How did your company get started?
Swall's Associated Services was started out of high school thanks to my neighbor, Stefan Malczewski, who used to bring his son's friend from across the street (me) into his company to fix their computers. By the time I was out of high school he had referred me to several other businesses and I had a client base.
Being straight out of high school my rates were dirt cheap, as to be expected, and because of that I grew a rather large client base in a short amount of time. 90% of our current clients have been with us since near the beginning - only a small handful have been added the past few years.
In Conclusion
My only motive for writing this entry is that I wanted to be candid about the reasons behind why I have to make the change I am making. I hate raising prices - I really do. Unfortunately it's time for my rates to come better in line with the rest of the industry. Clearly they all knew something all this time that I refused to see - you can't be profitable in this industry charging such low rates.
If there is a question I didn't address in this post please add it to the comments below and I'll do my best to answer it for you.
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