Cash Flow Margin — Using It To Figure Out How Much To Charge a Client

Are you always busy, working hard to serve your clients?

Still, the cash in the bank does not justify all your hard work and busyness.

If this is you, then your cash flow margin may not be healthy.

By the end of this article, you will know exactly how to improve cash flow margin, so that you can have more cash flow in your business, without increasing the time you spend in the business.

For my ongoing research on female entrepreneurs, I have done 40 plus 1:1 calls. And, through these calls, many of these entrepreneurs told me that they find it challenging to price their product right for a healthy cash flow margin.

So you’ll also learn how to come to the right price to charge a client so that you have a healthy cash flow margin.

Understanding Cash Flow Margins

Business is a game of margins.

If you are not familiar with what cash flow margin is, it simply means how much money you get paid minus what it costs you to deliver your promise to your client.

So, a business doing $100K in revenues after costs of $60K, will have a $40K cash flow margin, which is a 40% margin.

Another business doing $80K in revenue after costs of $30K will have a margin of $50K, which is 64%.

This means that a second business has a better cash flow margin, despite having fewer revenues.

Here Is What I Told a Female Coach on Setting Up the Right Selling Price

I was speaking to a female coach who helps busy professionals manage their stress and avoid burnout.

She told me, where she got leads from, how much her clients pay her, and how much her business keeps. It’s not even 50/50.

When we looked at the number of hours she spent on the coaching sessions, and how much payment she received. It turned she was making the same as minimum wage.

Another female coach told me that she ran FB ads to get new clients.

She charged $1200 for her program. And, the cost of converting a lead into a sales call was $75.

She was using a complex funnel, where those who clicked on her FB ads, came to a landing page, with an offer to attend a webinar. Those who attended were prompted to schedule a sales call.

She was converting 1 of every 5 people she spoke with. So her cost to acquire one client was $375 (5*75).

This was without the costs of building funnels as one-off costs.

It was ok until we looked at the time she spent delivering her program.

So her program consisted of 12 sessions of 3 hours each. That meant she spent 36 hours serving one client and earning $1200.

Here is how we arrived at what she was making / hour worked:

• Her revenue/client was $1,200
• The cost of acquisition per client was $375
• Leaving her with take-home pay before taxes of $825
• So she was earning 22.90/hour ($825/36)

When she looked at this number she wasn’t happy. Because this amount was less than what she made in her corporate job earlier.

She wasn’t happy because though she had the freedom to do what she wants to do, and who she wants to work with but she didn’t have the financial freedom she hoped for.

There were many areas, where she could have improved cash flow margin to improve her take-home pay, like improve CTR, or CPA.

I also told her to charge more by increasing the price of the program.

I have come across female coaches and consultants not charging more for their products or services. They either have money mindset issues around money or they just don’t know what’s sensible, profitable to charge.

Here’s the formula you can walk away with, today if you are experiencing such challenges if you want to keep the cash flow margin healthy.

Price of Your Program = Costs of Direct Marketing + Quantified Costs of Not Solving the Problem for the Client + Profit You Want To Make

If your client is going to make an extra $1500 by doing your program, then your program price will be $1500 plus let’s say 30% profit- which is $450 and then add the direct cost of marketing — $375- so in total $2,325.

This makes sure that you as an owner of the business wearing multiple hats off of a skilled worker for your business plus as a business owner, both have to be compensated.

You can compensate you as a skilled worker to solve the client’s problem and attribute $1,500 to it and then $450 as a profit wearing a hat as the owner of the business. This is a very simple way of looking at it.

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If you like videos more than words, then I published a video with the same content, you might want to check it out below.