The pricing structure of your business affects profitability and performance, impacting
every area within the business.

You need to not only cover all overheads but make a profit.

A notable example of this in Australia was when due to covid, we saw the collapse of
many construction companies.

The cost of key building materials, lifted by more than
40 per cent in one year, which meant those who had a small profit margin or who didn’t accommodate for it, would not survive.

It is imperative that time and precision is taken in evaluating true costs in the business. Even
the smallest variations can ultimately make or break your success.

For those using bookkeeping software like Xero, it can be easier to evaluate.

Pricing strategy.
Here are some things to consider:
– According to Profit First, operating expenses should be 30% of income
– Your selling price needs to be able to keep you in business.
– If products are set too high, potential customers may not buy
– The average gross profit margin is 50%
– Make informed decisions per individual unit when pricing
– Competitors analysis to determine market price

True Costing:
Variable costs include :
– Costs of goods
– Production time
– Packaging
– Promotion materials
– Shipping
– Affiliate commissions
– Production supplies
– Payment fees
– Admin
– Education
– Uniform
– Events
– Travel
– Entertainment
– Gifts

Fixed costs include :
– Storage
– rent
– Insurance
– Accountant
– Bookkeeper
– Wifi
– Tax gst
– Mobile
– Wage
– Canva
– Email platform
– Website hosting
– Domains
– Zapier
– Jotform
– Utility bills
– Loans
– Business licenses/registrations
– Xero
– Software

Cost-plus pricing is one of the simplest ways to price your product:

Add up all your costs, set a profit margin on top of that, and that’s your price.
Ie. Costs (Variable and fixed) + Profit margin % = Price

You can decide on a per project rate or an hourly rate.
To determine what your Hourly rate is, work out what you want to make per year.
There are approximately 2000 work hours in a year

If you want to make $100 000 a year / 2000hrs = $50/hour (granted you work 2000 hrs a
year) BUT this isn’t possible as a small business owner as 50% of that time isn’t billable, as
that time is spent looking for and managing customers, along with running the business.

It is therefore more accurate to double that. In this example, $100/hr.

To calculate your break-even per unit, use the above information to enter your relevant costings into Shopifys calculator https://www.shopify.com/au/blog/how-to-price-your-
product

Example: (PS. I’m not an accountant or bookkeeper. Please consult with them. Take my example with a ‘pinch of salt’)

Mary sells Pots

The green pot:
The true cost (variable and fixed excluding tax and wages) is $15
Her profit Margin is 100%
Her selling price is $30
Mary wants her wage to be $50 000 per year

According to profit first her wage should be 50% of income, so Income should be $100 000
Mary must sell $3 333 green pots per year which is 64 pots per week
Bringing in $1920 income per week
Her wage would be $960/week (50%)
30% of income is for operating expenses (which is $576) and 15% would be for tax ($288)

Where do we go wrong?
– Not putting aside tax/gst
– Not putting aside for operating expenses
– Not putting aside for savings for unexpected
– Spending before having the income
– Spending outside of the budget
– NOT looking at your figures

If you are struggling to get your head around running a profitable business and are lookingfor feedback, direction and accountability, book a call to discuss working with Chantal Gerardy (The handholding marketing consultant)