Have you ever run into business owners that use their business to “be nice” or to “bless” someone else? I have, and they usually have a negative profit every time. A job priced to take 2 hours takes 6 hours, but the price doesn’t increase, so the labor rate doesn’t match the price. I have also seen people treat a service-based business as a product business. A product can take hours to make and then is sold at one price. However, what many business owners don’t know is depending upon the work, the price includes the labor cost in the product, and that’s why some items cost more to purchase. Although the consumer will never see the labor cost, they have this cost in the price.
Most people are taught “value” pricing by marketers that have no idea about accounting. We talked about this pricing in a previous blog. What’s happening is many think they can sell something at $35, but they don’t understand the “true” cost if they want to pay themselves. Also, here’s a blog called “The True Cost of Payroll.” Most business owners take money out before they pay other bills or taxes. Planning plays a large part in taking away a lot of the worry around business ownership.
Yes, there is a commission-based business, so the more sold, the more commission the salesperson makes. Often this creates that financial rollercoaster we discussed. Many people will often not see their business as their primary income earning potential. If you sell an already made product, you would be commission-based sales, and sales volume is essential. However, if you work hourly to make the product or produce a service, we need to be paid hourly, and you need to cover ________. You have to decide if you can first support the sale and stop letting people that like to give away services talk you into working for free.
Just to give you an example. You need to earn $20 per hour and no other cost except self-employment taxes. However, with each sale, you need to accumulate __________, and you need to earn a ________? You are paid $40 for the job, but you worked 5 hours to complete the job. What was your true earning potential? Learn more with the B&P Pricing Course, and we can work this out together. "Building A Fair & Profitable Pricing Plan."
Y. Michelle Coard, B.A, A.A.S in Accounting
Owner & Profit Strategist
Stop guessing at your pricing. Find peace of mind with princing in the B&P "Building Fair & Profitable Pricing Plans."
All courses are tax deductible business accounting training.