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EQUAL PAY DAY – WOMEN ENTREPRENEURS AND THE REVENUE GAP Women are leaving money on the table

Updated: May 3, 2022

Equal Pay Day marks the day when working women will have earned what men earned in the previous year. This year, that day is Tuesday, March 15, and highlights the pay gap representing how much longer women must work to earn the same amount of pay, according to the National Committee on Pay Equity (NCPE). The wage gap is even greater among most women of color.

It has been more than 26 years since NCPE began tracking the data in 1996. Today, women are no longer waiting for change to come but are leaving the workforce in large numbers and turning to entrepreneurship to pay themselves what they are worth.

Now a set of new challenges are arising. Women are leaving money on the table resulting in what I estimate to be as much as 80 percent in loss of potential income. They are also more likely than men to defer paying themselves according to research by Penn State, the Fair Pay Workplace, The Nasdaq Entrepreneurial Center, and others that shows 55 percent of 152 early-stage women entrepreneurs sampled are choosing not to pay themselves for as much as five years. Reasons given include fear of debt, thinking lender approval is a long shot or waiting to be in a stronger financial position.

Approximately 88 percent of women-owned firms generate less than $100,000 in revenue. Further, 97.5 percent of the more than 1.5 million black women-owned firms have no employees. Firms owned by women of color account for 47 percent of all women-owned firms but generate the least amount of receipts, with black women generating the least of all groups.

And, while many women-owned firms have been led to believe that access to capital is a key barrier to growth, my work with minority and women-owned enterprises suggests that the inability to generate adequate revenue is due to reasons unrelated to skills or ability and is a problem of epic proportion.

One example comes from a procurement officer for the local school board minority business enterprise program who stated, “When you see the bids come in, you wonder how they are going to pay themselves, much less fulfill the contract without putting their own money into it.” The “low-bid-wins” approach is under review and organizations are offering additional training and resources to minimize unintended effects.

How can we help women and the fastest-growing segment of business startups, women of color, to close the revenue gap? Start with the end in mind. Build better revenue models. Here are five ways to close the revenue gap and increase economic equity.

1. THOU SHALT KNOW THY PROFIT MARGINS: While it is not necessary for a business owner to become an accountant in order to operate a business, it is important to know pricing formulas and the method by which costs and profit are calculated. An important formula for determining your break-even point for example is: Break-even point = Fixed costs / (Revenue per unit – Variable cost per unit).

2. PRICE APPROPRIATELY: Common pricing mistakes include: • Not having a model or not sticking to the model you decided on • Underestimating the costs involved in running the business • Using only low prices to compete with other players • Setting a pricing model and never modifying it to suit changing conditions

Entrepreneurs must understand the details of pricing a product based on sound research compared with observable trends. The tendency to volunteer and offer discounted pricing is an acceptable business practice, but if an entrepreneur is confident about their pricing structure, they will have a better indication of how much they can discount and still generate the profit they desire.

3. EXPECT TO NEGOTIATE: Negotiation is a necessary skill for women entrepreneurs; however, limiting beliefs such as money is the root of evil, love of money is a sin, and other phrases limit or eliminate negotiation opportunities. Additionally, values such as trust, and altruism may place negotiation decisions on the client or defer the conversation altogether. Offer contract language and use examples of standard phrases and common questions as part of broader conversations are the beginning of reducing pricing disparities.