Pricing your products and services can seem tricky and maybe even a little overwhelming. We want to charge what the market will accept, but we also need to ensure we aren’t losing money when we sell. And it is very possible to lose money on your products and services. When we aren’t priced to consider everything that goes into creating the product or service, our operating costs, and a profit margin we may be losing money. Profit is so important. It isn’t about what you make in business, it really is about what you keep. That leftover money that can be used for growth, bigger paychecks, hiring, and real impact.
Our first step is to understand our operating costs. What does it cost you every week, day, or even hour just to keep the doors open to make money?
For example, if your monthly operating costs are $3500.00 and you are open for 20 days a month (Monday-Friday for four weeks) your daily operating costs are $175.00. This means you need to average $175/day every day you are open to cover your operations. This also comes out to $22.00/ hour. So, when you are pricing your products and services you need to consider, and recover, that $22.00/ hour in your pricing structure.
Next, what does it REALLY cost you to make that product or service?
All the costs. The hourly cost you want to recover plus the cost of making the thing, whether it is a bracelet or a workbook. I mean ALL costs. Do you print labels for your handmade goods or buy tags for pricing? It counts. Gas to get to the flea market? It counts. Pay for an online platform or storage for all of your digital products? It counts. In your pricing I want you to recover ALL of your costs. I have worked with too many entrepreneurs who were leaking profits 10 cents at a time because they forgot to add in some actual cost and break it down for each product or service sold.
Finally, add a profit margin. Go ahead, tack on some pure profit. How much is up to you.
You can decide what you want to add as a percentage or a number. For example, you charge $200.00 for a service. You add $20.00 as a 10% pure profit line, and the new price is $220.00 for your service. You can add 40%, 50%, the amount is totally your call. Go ahead and play with a few numbers to see what feels good for a profit margin on your product and service. Everything you sell needs a profit margin, but all margins do not have to be equal. For example, you can have something with a 10% margin and something with a 50% margin at the same time.
Add these three categories together to price yourself for profit.
Let’s say your costs to produce your jewelry is $35.00 (including labor and materials). You want a 10% profit margin ($3.50) and it costs you $23.00/ hour in operations costs, and it took you an hour to produce. The price for that piece of jewelry should START at $61.50. So, if you are selling for $40.00 costs plus a little bit) you are probably losing money. And I see a lot of entrepreneurs’ price things that actually lose money because they price without considering operations or profit. Use this formula and everything you sell should make you profit in your business.
Grab your free guide on Pricing For Profit by visiting: https://entremoneycoach.kartra.com/page/pricing
Dawn Kennedy is an attorney, financial coach, and serial entrepreneur who is passionate about helping small businesses thrive in the face of unexpected market changes by ensuring there is a plan to protect financial milestones and a plan for the company’s successful growth. She applies the lessons learned from UNEQ Consulting, LLC, and her training as a financial coach, project manager, strategic planner, and attorney to work with other entrepreneurs to implement positive and powerful changes to help their businesses thrive and grow. Dawn solves problems with creative options that get results.