Get Your Money’s Worth! Things to Know When Pricing Your Products and Services

Do you struggle with picking good price points in your business?  You know what I mean โ€“ coming up with a price for your services or products that you know will *actually* be profitable?? ๐Ÿ˜ฌ

If that sounds like you, then itโ€™s time to get to know the fixed and variable expenses in your business โ€“ and then use a super simple breakeven formula ๐Ÿค“

๐Ÿค” ๐—ฆ๐—ผ ๐˜„๐—ต๐—ฎ๐˜ ๐—ฎ๐—ฟ๐—ฒ “๐—ณ๐—ถ๐˜…๐—ฒ๐—ฑ ๐—ฒ๐˜…๐—ฝ๐—ฒ๐—ป๐˜€๐—ฒ๐˜€”?

These are your โ€œoverhead costsโ€, and they donโ€™t change much from month to month.  You pay roughly the same amount, no matter how much (or little!) business you do.

Some examples of fixed expenses are:

๐Ÿข Rent or lease of office space

๐Ÿ‘ฉ๐Ÿปโ€๐Ÿ’ป Website hosting fees

๐Ÿ‘” Employee salaries

๐Ÿค” ๐—”๐—ป๐—ฑ ๐˜„๐—ต๐—ฎ๐˜ ๐—ฎ๐—ฟ๐—ฒ “๐˜ƒ๐—ฎ๐—ฟ๐—ถ๐—ฎ๐—ฏ๐—น๐—ฒ ๐—ฒ๐˜…๐—ฝ๐—ฒ๐—ป๐˜€๐—ฒ๐˜€”?

These are expenses that are directly tied to your volume of production and/or sales.  Therefore, the total amount of these expenses changes depending on your volume.

Some examples of variable expenses are:

๐Ÿฅฉ Cost of raw materials

๐Ÿ“ฆ Shipping + distribution

๐Ÿ’ณ Credit card transaction fees

๐Ÿค” ๐—”๐—ป๐—ฑ ๐—ต๐—ผ๐˜„ ๐—ฑ๐—ผ๐—ฒ๐˜€ ๐—ธ๐—ป๐—ผ๐˜„๐—ถ๐—ป๐—ด ๐˜๐—ต๐—ถ๐˜€ ๐—ต๐—ฒ๐—น๐—ฝ ๐—บ๐—ฒ ๐—ฐ๐—ต๐—ผ๐—ผ๐˜€๐—ฒ ๐—ฎ ๐—ฝ๐—ฟ๐—ผ๐—ณ๐—ถ๐˜๐—ฎ๐—ฏ๐—น๐—ฒ ๐—ฝ๐—ฟ๐—ถ๐—ฐ๐—ฒ ๐—ฝ๐—ผ๐—ถ๐—ป๐˜?

๐˜‰๐˜ฆ๐˜ค๐˜ข๐˜ถ๐˜ด๐˜ฆ ๐˜ถ๐˜ฏ๐˜ต๐˜ช๐˜ญ ๐˜บ๐˜ฐ๐˜ถ ๐˜ฌ๐˜ฏ๐˜ฐ๐˜ธ ๐˜ธ๐˜ฉ๐˜ข๐˜ต ๐˜บ๐˜ฐ๐˜ถโ€™๐˜ณ๐˜ฆ ๐˜ด๐˜ฑ๐˜ฆ๐˜ฏ๐˜ฅ๐˜ช๐˜ฏ๐˜จ, ๐˜บ๐˜ฐ๐˜ถ ๐˜ธ๐˜ฐ๐˜ฏโ€™๐˜ต ๐˜ฌ๐˜ฏ๐˜ฐ๐˜ธ ๐˜ฉ๐˜ฐ๐˜ธ ๐˜ต๐˜ฐ ๐˜ฎ๐˜ข๐˜ฌ๐˜ฆ ๐˜ข ๐˜ฑ๐˜ณ๐˜ฐ๐˜ง๐˜ช๐˜ต – !

And once you do, itโ€™s (almost) as easy as 1 + 2 = 3.  Just use this formula to find your breakeven point:

๐™๐™ž๐™ญ๐™š๐™™ ๐™˜๐™ค๐™จ๐™ฉ๐™จ / ๐™๐™š๐™ซ๐™š๐™ฃ๐™ช๐™š ๐™ฅ๐™š๐™ง ๐™ช๐™ฃ๐™ž๐™ฉ ๐™–๐™›๐™ฉ๐™š๐™ง ๐™ซ๐™–๐™ง๐™ž๐™–๐™—๐™ก๐™š ๐™˜๐™ค๐™จ๐™ฉ๐™จ = ๐˜ฝ๐™ง๐™š๐™–๐™  ๐™š๐™ซ๐™š๐™ฃ ๐™ซ๐™ค๐™ก๐™ช๐™ข๐™š

As an example, letโ€™s say that you sell clocks โฐ

Right now, you sell each clock for $10. Your variable costs (materials, etc.) for each clock is $6. And your fixed costs for the clock store (rent, etc.) is $1,000/ mo.

1,000 / (10 โ€“ 6) = 250 clocks you need to sell โ€ฆ just to cover your fixed expenses, not even to make a profit (!)

Does that feel like too many clocks?  Just play with the price to find a better number! (Ex: Selling at $15 = just 112 to break even!)

Here is a helpful article to explain variables in more detail ๐Ÿ‘‡

https://bench.co/blog/accounting/variable-costs/?blog=e6

What about you?  How do you pick profitable price points in your business?  Weโ€™d love to hear! โค๏ธ

โ€ฆ Or maybe youโ€™re still feeling overwhelmed by this process or the whole financial management side of your business?  If thatโ€™s the case, no worries โ€“ this is exactly the kind of stuff we do! โค๏ธ

Every day we help our clients organize the numbers in their business and turn them into real-world information – like where to reduce expenses and set profitable price points.  And weโ€™d love to do the same for you, too!

Contact us at info@chooseabacus.com or call (352) 432-8104

Kerry Postel โ€“ Founder CEO Principal

Abacus Business Solutions

Has Higher National Diploma in Business and Finance, Certified in QuickBooks, Member of American Institute of Bookkeepers, and over 20 years of bookkeeping experience including construction, travel, restaurants, events management, and other various professional services.

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