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

Get-Your-Moneys-Worth-Things-to-Know-When-Pricing-Your-Products-and-Services

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

๐Ÿค”ย ๐—ฆ๐—ผย ๐˜„๐—ต๐—ฎ๐˜ย ๐—ฎ๐—ฟ๐—ฒย “๐—ณ๐—ถ๐˜…๐—ฒ๐—ฑย ๐—ฒ๐˜…๐—ฝ๐—ฒ๐—ป๐˜€๐—ฒ๐˜€”?

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

Some examples of fixed expenses are:

๐Ÿขย Rent or lease of office space

๐Ÿ‘ฉ๐Ÿปโ€๐Ÿ’ปย Website hosting fees

๐Ÿ‘”ย Employee salaries

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

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

Some examples of variable expenses are:

๐Ÿฅฉย Cost of raw materials

๐Ÿ“ฆย Shipping + distribution

๐Ÿ’ณย Credit card transaction fees

๐Ÿค”ย ๐—”๐—ป๐—ฑย ๐—ต๐—ผ๐˜„ย ๐—ฑ๐—ผ๐—ฒ๐˜€ย ๐—ธ๐—ป๐—ผ๐˜„๐—ถ๐—ป๐—ดย ๐˜๐—ต๐—ถ๐˜€ย ๐—ต๐—ฒ๐—น๐—ฝย ๐—บ๐—ฒย ๐—ฐ๐—ต๐—ผ๐—ผ๐˜€๐—ฒย ๐—ฎย ๐—ฝ๐—ฟ๐—ผ๐—ณ๐—ถ๐˜๐—ฎ๐—ฏ๐—น๐—ฒย ๐—ฝ๐—ฟ๐—ถ๐—ฐ๐—ฒย ๐—ฝ๐—ผ๐—ถ๐—ป๐˜?

๐˜‰๐˜ฆ๐˜ค๐˜ข๐˜ถ๐˜ด๐˜ฆย ๐˜ถ๐˜ฏ๐˜ต๐˜ช๐˜ญย ๐˜บ๐˜ฐ๐˜ถย ๐˜ฌ๐˜ฏ๐˜ฐ๐˜ธย ๐˜ธ๐˜ฉ๐˜ข๐˜ตย ๐˜บ๐˜ฐ๐˜ถโ€™๐˜ณ๐˜ฆย ๐˜ด๐˜ฑ๐˜ฆ๐˜ฏ๐˜ฅ๐˜ช๐˜ฏ๐˜จ,ย ๐˜บ๐˜ฐ๐˜ถย ๐˜ธ๐˜ฐ๐˜ฏโ€™๐˜ตย ๐˜ฌ๐˜ฏ๐˜ฐ๐˜ธย ๐˜ฉ๐˜ฐ๐˜ธย ๐˜ต๐˜ฐย ๐˜ฎ๐˜ข๐˜ฌ๐˜ฆย ๐˜ขย ๐˜ฑ๐˜ณ๐˜ฐ๐˜ง๐˜ช๐˜ตย – !

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

๐™๐™ž๐™ญ๐™š๐™™ย ๐™˜๐™ค๐™จ๐™ฉ๐™จย /ย ๐™๐™š๐™ซ๐™š๐™ฃ๐™ช๐™šย ๐™ฅ๐™š๐™งย ๐™ช๐™ฃ๐™ž๐™ฉย ๐™–๐™›๐™ฉ๐™š๐™งย ๐™ซ๐™–๐™ง๐™ž๐™–๐™—๐™ก๐™šย ๐™˜๐™ค๐™จ๐™ฉ๐™จย =ย ๐˜ฝ๐™ง๐™š๐™–๐™ ย ๐™š๐™ซ๐™š๐™ฃย ๐™ซ๐™ค๐™ก๐™ช๐™ข๐™š

As an example, letโ€™s say that you sell clocksย 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€ฆjust to cover your fixed expenses, not even to make a profit (!)

Does that feel like too many clocks?ย  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 detailย ๐Ÿ‘‡

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

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

โ€ฆ Or maybe youโ€™re still feeling overwhelmed by this process or the whole financial management side of your business?ย  If thatโ€™s the case, no worries โ€“ this is exactly the kind of stuff we do!ย 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.ย  And weโ€™d love to do the same for you, too!

Contact us atย info@chooseabacus.comย or call (352) 432-8104