Updated: Jun 16, 2021
With the AMOUR Start Up Business Boot Camp starting soon one of the topics we cover is how to price your products so you're not working for free and since going through the content for that week's training I have really noticed how many people I know that run their own business and don't price themselves into their services when they are working out their pricing.
One conversation I have A LOT in my accountancy business, especially when I start working with new Business Owners and Companies is how to work out what their overheads are so that they know they're covering their "company" costs as well as the cost to do the job/provide the service when they are creating quotes or looking at products and if they are viable.
YOU are a cost to your business
Do you know what YOU need to earn personally from your business? Do you include that cost in your overheads when you're working out your monthly business costs?
For a lot of company Directors that pay themselves a lower salary but take dividends from the profits of the company when they are looking at their company overheads they only take into account their salary and not the profit they need to make so that they can take dividends.
Or if you have staff working for you and you are pricing a contract or job that YOU will be working on do you include the cost to have you there as well or do you just cover the cost of your staff and expenses?
For some people that work in the service industry you might charge a flat fee for a certain service and then offer free telephone support to the people you are working with, have you ever worked out how much time you spend on the phone offering advice and if you were charging by the hour if you have covered that time in the fixed fee that you are charging? I know this can be hard as some people will not use that support and others will overuse it but you have to have a balance as your time is valuable.
This might sound like it's difficult to work out but I promise you once you have worked out your outgoings it's really easy to work these costs into your budgets and pricing structures (if you don't have these things in place and you want to create them and learn simple techniques to use them in your business the AMOUR Business Start Up Boot Camp is starting soon - Click here to book now)
To work out what you need to earn each Day/Month/Product I have included an exercise below you can use:
Once you have worked out what you need each month to cover your business overheads (office rent, wages, internet, advertising etc) add to this figure what YOU need to earn each month. - Then add on an additional 20 -25% (if you are UK based) to cover your taxes and any small unexpected costs.
If you provide services and work Monday to Friday I would then divide that figure by 22 (there are approximately 22 working days in each month)
This is the amount you need to earn each day just to cover your costs
Please remember this figure does not include the actual cost of the job so if you work in a trade where you purchase materials that cost would be on top of that figure when pricing jobs.
One thing to remember here is if you provide a service and charge a fixed amount for X amount of visits/calls etc then divide the total amount you charge for that service by the amount of visits/calls you provide so that you have a cost per visit or call.
If you sell products or have a shop then you can use the same formula but instead of dividing it into days you can divide it into the amount of items that you need to sell each month (the percentage you allocate to each item will probably vary as your more expensive items will cover a larger proportion of your costs, your Accountant should be able to put together something for you to use to make sure you are allocating a proportion of your overheads to each product)
In a survey carried out by Review42 in February 2021 they found that out of the "90% of new Start Up businesses that failed 82% of them failed because of cash flow reasons". That percentage is HUGE! By making sure you are covering your base costs when you are pricing your services and products goes a long way to taking care of your cash flow, especially when you start getting busy and your business takes off.