Let’s talk about all of the things that your price needs to cover, because it needs to cover more than you think. Full transcript below…
Welcome to the Business Numbers Podcast. I’m your host, Ben McAdam. I’m a profits coach, virtual CFO and entrepreneur, and I’ve created this podcast to help you grow your business profits and understand your business numbers without judgement and without burying you in a whole bunch of jargon that you don’t need. Just actionable tips and case studies to help you grow your business. For show notes, go to the website businessnumberspodcast.com.
In today’s episode I want to continue the pricing theme as it’s the last in, I suppose, a little mini series on pricing. I want to talk about all of the things that your price needs to cover, because it needs to cover more than you think. So maybe you’ve been in business for a while and you’ve raised your prices from those embarrassingly low prices we all charged in the beginning. But your prices might not cover everything now, so no matter how much you sell, you’ll still feel low on cash, and you might actually find that you’re working harder and harder as your business grows, instead of being able to hire more people and maybe stress less. So here’s the list of all the things that your prices need to cover.
Number one: delivery. By delivery, I mean, all the costs of providing the service or product that you sold.
Number two: marketing time, team, or investment. This is all about attracting potential customers, warming them up, inviting them to a sales call, or other conversion event on your site, for example.
Number three: sales time or team. This is about turning the right potential customers into actual customers and your price needs to cover the time on sales or the team that are working on sales.
Number four: admin time or team. Keeping the business organised, answering inquiries, that sort of thing.
Number five: management, the time or team that are helping your team perform at their best.
Number six: owner pay- very important. At least market rate for the tasks that you are doing in the business.
Number seven: growth projects. These usually require money or time. And so your pricing needs to cover those too.
Number eight: overheads. These are the other expenses apart from the cost of providing that service or product you sold. They’re other expenses like accounting, bank fees, insurance, software, rent, that kind of thing.
And number nine: profit. Prices need to also allow for profit.
I’ve done a previous episode on why are profits important. A bit brief recap: profit is savings, paying down debt, investing in assets, building working capital, that kind of thing.
So there’s nine things that prices need to cover. And usually people only think of the first one- delivery, all the costs of providing the service or products. Like, “Okay, it costs us a thousand dollars to make this product and get it to the customer… so I’ll charge $1,001.” Just make sure that you’re thinking about more than that when you’re building your pricing.
Now, remember each of these in the list that I talked about- team or time- they assume that you are, or can pay someone market rate and that it’s not you doing that particular task yourself for below minimum wage, because you want to grow the business or something. So remember when you’re building your pricing to make sure that all of these things are factored in and you’ll find that you’ll have enough money to grow your business, to attract and convert customers, pay for management and admin teams as you grow and all of those good things. As always, if you have any questions, find me at businessnumberspodcast.com and send me a contact message.
Thanks for listening to the Business Numbers Podcast. Subscribe in iTunes, Stitcher, or on our website, businessnumberspodcast.com. Also on the website is a free basic concept webinar and a contact form for submitting questions that you’d like me to answer on a future episode.