The whole point of being in business is to make money. If you are not making money, then your business is either a hobby or a charity.
Yet, while finances and pricing are topics that may be covered in your initial business plan, they may not be re-visited for a long time after that. If this is happening in your business, it must change now. Pricing your goods or services (and finance in general) is something you should review regularly.
On a side note, please do not say “my accountant looks after all that”. My heart drops when business owners say this. It is your responsibility as the business owner to know the costs involved in your business, then you will know how much of your product or service you need to sell in order to make a profit.
Another side note: this is a reason why the dairy side of our farm frustrates me! I know all the costs and have very little to no control over these. However, I also have no control over the price we receive for the milk. This leads to much frustration, especially when milk price drops. But that’s a conversation for another day.
So, what should be included when pricing for the business and how do I do it?
Count the costs
Firstly, let’s start with the direct inputs. Any cost that is needed to make your product ready for sale needs to included.
After this are all the other costs which you may not initially think of; for example premises, utilities, insurance, phone, broadband, bank charges or loans, motor expenses, staff wages, the list can be endless. Your accountant can help and guide you with regards to business costs and what is and isn’t one. But remember, no one knows your business and how it runs like you. Your accountant can only work with the information they are given.
Finally, a very important cost to be included is you, the business owner’s wages! As business owners we can very often be the last to get paid, making sure staff and suppliers are always paid. But this is not sustainable long-term. Each and every sale you make should include the cost of your wages. Your expertise, skills and time are essential to the business and you need to be rewarded for this and remember, your wages and profit are not the same.
Regular reviews
As we know, many costs have increased over the last few years, but when did you last review your costs? All costs in a business should be reviewed regularly. Talk to your suppliers, get quotes from new ones, make informed decisions. This will ensure that your business remains viable and highlights any potential issues early so that they can be dealt with.
Once you know how much your product or service costs to provide, you can calculate how much profit you can make. If you need the business to make X amount to cover all costs, then you can work out how many products you need to sell to make this happen. This leads to your sales targets.
Getting your pricing right gives your business the value it deserves. Yes, market competitiveness is a factor and you should never be afraid to charge more than your competitors if your product is worth it and there is value to it.
As Warren Buffet said, “Price is what you pay, value is what you get.”
Read more
Steps to success: systems and processes
Steps to success: how to get the most from your working day
The whole point of being in business is to make money. If you are not making money, then your business is either a hobby or a charity.
Yet, while finances and pricing are topics that may be covered in your initial business plan, they may not be re-visited for a long time after that. If this is happening in your business, it must change now. Pricing your goods or services (and finance in general) is something you should review regularly.
On a side note, please do not say “my accountant looks after all that”. My heart drops when business owners say this. It is your responsibility as the business owner to know the costs involved in your business, then you will know how much of your product or service you need to sell in order to make a profit.
Another side note: this is a reason why the dairy side of our farm frustrates me! I know all the costs and have very little to no control over these. However, I also have no control over the price we receive for the milk. This leads to much frustration, especially when milk price drops. But that’s a conversation for another day.
So, what should be included when pricing for the business and how do I do it?
Count the costs
Firstly, let’s start with the direct inputs. Any cost that is needed to make your product ready for sale needs to included.
After this are all the other costs which you may not initially think of; for example premises, utilities, insurance, phone, broadband, bank charges or loans, motor expenses, staff wages, the list can be endless. Your accountant can help and guide you with regards to business costs and what is and isn’t one. But remember, no one knows your business and how it runs like you. Your accountant can only work with the information they are given.
Finally, a very important cost to be included is you, the business owner’s wages! As business owners we can very often be the last to get paid, making sure staff and suppliers are always paid. But this is not sustainable long-term. Each and every sale you make should include the cost of your wages. Your expertise, skills and time are essential to the business and you need to be rewarded for this and remember, your wages and profit are not the same.
Regular reviews
As we know, many costs have increased over the last few years, but when did you last review your costs? All costs in a business should be reviewed regularly. Talk to your suppliers, get quotes from new ones, make informed decisions. This will ensure that your business remains viable and highlights any potential issues early so that they can be dealt with.
Once you know how much your product or service costs to provide, you can calculate how much profit you can make. If you need the business to make X amount to cover all costs, then you can work out how many products you need to sell to make this happen. This leads to your sales targets.
Getting your pricing right gives your business the value it deserves. Yes, market competitiveness is a factor and you should never be afraid to charge more than your competitors if your product is worth it and there is value to it.
As Warren Buffet said, “Price is what you pay, value is what you get.”
Read more
Steps to success: systems and processes
Steps to success: how to get the most from your working day
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