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?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
If that sounds like you, then itโs time to get to know the fixed and variable expenses in your business โ and then use a super simple breakeven formulaย
ย ๐ฆ๐ผย ๐๐ต๐ฎ๐ย ๐ฎ๐ฟ๐ฒย “๐ณ๐ถ๐
๐ฒ๐ฑย ๐ฒ๐
๐ฝ๐ฒ๐ป๐๐ฒ๐”?
These are your โoverhead costsโ, and they donโt 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:
ย Rent or lease of office space
โ
ย Website hosting fees
ย Employee salaries
ย ๐๐ป๐ฑย ๐๐ต๐ฎ๐ย ๐ฎ๐ฟ๐ฒย “๐๐ฎ๐ฟ๐ถ๐ฎ๐ฏ๐น๐ฒย ๐ฒ๐
๐ฝ๐ฒ๐ป๐๐ฒ๐”?
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:
ย Cost of raw materials
ย Shipping + distribution
ย Credit card transaction fees
ย ๐๐ป๐ฑย ๐ต๐ผ๐ย ๐ฑ๐ผ๐ฒ๐ย ๐ธ๐ป๐ผ๐๐ถ๐ป๐ดย ๐๐ต๐ถ๐ย ๐ต๐ฒ๐น๐ฝย ๐บ๐ฒย ๐ฐ๐ต๐ผ๐ผ๐๐ฒย ๐ฎย ๐ฝ๐ฟ๐ผ๐ณ๐ถ๐๐ฎ๐ฏ๐น๐ฒย ๐ฝ๐ฟ๐ถ๐ฐ๐ฒย ๐ฝ๐ผ๐ถ๐ป๐?
๐๐ฆ๐ค๐ข๐ถ๐ด๐ฆย ๐ถ๐ฏ๐ต๐ช๐ญย ๐บ๐ฐ๐ถย ๐ฌ๐ฏ๐ฐ๐ธย ๐ธ๐ฉ๐ข๐ตย ๐บ๐ฐ๐ถโ๐ณ๐ฆย ๐ด๐ฑ๐ฆ๐ฏ๐ฅ๐ช๐ฏ๐จ,ย ๐บ๐ฐ๐ถย ๐ธ๐ฐ๐ฏโ๐ตย ๐ฌ๐ฏ๐ฐ๐ธย ๐ฉ๐ฐ๐ธย ๐ต๐ฐย ๐ฎ๐ข๐ฌ๐ฆย ๐ขย ๐ฑ๐ณ๐ฐ๐ง๐ช๐ตย – !
And once you do, itโs (almost) as easy as 1 + 2 = 3.ย Just use this formula to find your breakeven point:
๐๐๐ญ๐๐ย ๐๐ค๐จ๐ฉ๐จย /ย ๐๐๐ซ๐๐ฃ๐ช๐ย ๐ฅ๐๐งย ๐ช๐ฃ๐๐ฉย ๐๐๐ฉ๐๐งย ๐ซ๐๐ง๐๐๐๐ก๐ย ๐๐ค๐จ๐ฉ๐จย =ย ๐ฝ๐ง๐๐๐ ย ๐๐ซ๐๐ฃย ๐ซ๐ค๐ก๐ช๐ข๐
As an example, letโs say that you sell clocksย
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 โฆjust 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
https://bench.co/blog/accounting/variable-costs/?blog=e6
What about you?ย How do you pick profitable price points in your business?ย Weโd love to hear!ย ๏ธ
โฆ Or maybe youโre still feeling overwhelmed by this process or the whole financial management side of your business?ย If thatโs the case, no worries โ this is exactly the kind of stuff we do!ย ๏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 weโd love to do the same for you, too!
Contact us atย info@chooseabacus.comย or call (352) 432-8104