On point with your pricing
Member feature: by Melanie of Mela’s VA Services
In today’s blog, I thought I would tackle the all important aspect of pricing. A quick disclaimer, pricing is detailed orientated and industry specific. The tips here are very generic, to really get a handle on your companies pricing you should hire a costing expert to walk you through all the variables that come into play.
When it comes to pricing, everyone has the basic cost of making a product down.
- The ingredients
- The fabric and thread
- The wool and needles
- Venue hire
But what so many start-ups forget to factor in are the variable costs, those costs that you can’t see. Now don’t go and get all anxious on me, they are pretty easy to find and including them into your costing, will ensure that your business grows and prospers right from the start.
Many years ago, I won’t mention how many. If you wanted to start a business you had to create a business plan, these where what you used to pitch to financial houses to get loans for your business. Now a days most start-ups start off as a side business, which usually means that you took something you loved to do and where passionate about and just jumped in feet first.
I love this and this makes me super sad, as so many of these “passion side hustles” fail. Because no real research or costing was done beforehand. The work became too much and there just never seemed to be any money to hire some help.
Sound like you?
Today, I want to demystify some of the costing aspects you might have overlooked. My aim is to help you possibly re-look at your “passion side hustle” and try again. In the current economy, we need all the entrepreneurs we can muster.
Let’s start with the most overlooked cost; you own a shiny new machine. But it’s not going to stay shiny and new for very long and at some point you will need to upgrade or replace. In accounting we “account” for your new machine every month, it’s called depreciation. Your bookkeeper or accountant runs a spread sheet over 2 or 5 or 10 years depending on the life expectancy of the equipment. We right off a small amount (in an ideal world, this amount we right off every month, you are putting in a savings account).
This small amount should also form part of your cost.
Next we look at the time it takes you to make or prepare the product, again here is another “cost” that is forgotten. As the owner of the “passion side hustle” you don’t think about paying yourself, you think ag, I will just take off the profit, if I make any. Well, eventually you will want to grow and produce more of your product and will want to employ someone to help you produce that product. If you haven’t factored in your “salary” then you won’t have any wiggle room to employ someone else.
To work out your time cost, do this simple math sum: In one hour or one day how many items can I make? Then divide that against what the retail price is of your product.
Next, it’s your electricity usage. This one is a little trickier and would be estimated at best: The sum to work it out looks a little like: Your overall electric bill, divided by the amount of hours (see above sum) to create one product (or one batch)
And finally, space you use. Now it might be in your garage right now, but when you grow you would need your own space. But what does that space look like, how much does it cost, where is it?
This is a tricky variable to calculate. To start off with, find out what space cost’s to hire in your immediate area. Ask for the costing based on the current space you use at home, this will give you an approximate costing should you ever want to expand and move your business into its own building.
Now we add your mark-up or calculate your profit. As your business grows this list will grow too, so your mark-up needs to allow for that growth.
Things like income tax, accounting services, website fee’s and phone accounts. Will all one day appear on the list! So don’t be stingy, but don’t forget about your ideal client and how much they are prepared to pay for the end product.
For example: A hand knitted jersey takes longer to create than a machine knitted jersey, but most consumers aren’t interested in paying more! But that’s a whole other blog topic.
I hope you found this useful and insightful, if you have any questions pop me a message and let’s continue the conversation.
For more on Melanie and how her business Mela’s VA Services can assist you, please do visit our members page.