Pricing models, and talking about the ‘M word’.

That awkward conversation about money, I’m not sure if it’s just a British thing, but why do we feel so awkward talking about money? Apologising before discussing fees, billing an hour less, not charging for products because we think it makes us look too pricey, does that sound familiar? If it does, you’re not alone. How can having the confidence of understanding your numbers affect your pricing? Let’s look at the difference between discussing value and discussing cost.

Being fully booked doesn’t automatically make a business profitable, having empty shelves doesn’t automatically make a business profitable, working 60 hours a week doesn’t automatically make a business profitable. There’s an old saying in business, that revenue is vanity, profit is sanity, but cash is reality. We might be working it like the rent is due tomorrow, but if we’re not priced correctly, we’re working dead hours.

How do you set your prices? There could be many options:

• Checking out the competition and taking a guess.

• Picking a number that ‘just feels right’.

• Last year, plus £5 more here, £2 more there.

The problem with taking these approaches is that it won’t tell you if you’re going to make any profit before you make the sale. Once you’ve agreed on a price the deal is done. So if you haven’t agreed the correct price, have you agreed to deliver a product or service at a price that doesn’t cover the actual cost? This is where a bookkeeper can help you, by creating a pricing model.

Think about the overheads that are sometimes forgotten, software subscriptions, professional memberships, training, marketing and office costs, even pension contributions can go under the radar and be missed out when we’re calculating prices.

What about unbilled hours when admin tasks are being completed, emails, sales calls, networking, holidays and sick days. These unbilled hours still carry a cost and should be included in the pricing model to ensure accuracy. If you bill 20 hours of a 40 hour week, does the 20 hours of billed work cover the whole week?

So how do you know you’re charging too little? Even before a pricing model is written for you, there are some signs to look out for:

• Are you always tired?

• Do you rarely take holidays?

• Is your cash flow constantly tight?

• Does every unexpected expense cause stress?

• Do you win almost every quote?

• Do your clients never challenge your prices or ask for discounts?

If you can answer ‘yes’ to any of these questions, you might very well be charging far too little for the work you do.

Do you think you’re charging too much? What evidence do you have that you are, in fact too expensive, is it a fact or is it a fear? Losing out on quotes is completely normal, clients choosing one quote over another is not always based on the cost. Not every customer will be your customer and sometimes a higher price can attract better-fit clients to your business.

Knowing your break-even point is the foundation of building confidence in your numbers, once you have this, conversations become easier and decisions are based on fact. When you know that the true cost of just one unit is say £100, you can then make an informed decision on what the selling price should be, using the pricing model approach takes the guess work out, and keeping the model up to date with increased or decreased cost means that your pricing strategy will always be bang up to date, as will your profit margins.

Good bookkeeping isn’t just about compliance, filling in tax returns, chasing debtors. A good bookkeeper can help you make business decisions. Pricing decisions are only as good as the numbers behind them and your bookkeeper can work with you to get this set up so you can then, with confidence know that the prices you charge are correct and up to date.

Being busy and being profitable are not the same thing, and if your pricing is based solely on guesswork, your profits probably are too. You can’t price with confidence if you don’t know your numbers, so reach out, I can help you and act as your business advisor, as well as doing your taxes.

Ask yourself the following questions:

• Do I know my actual cost of delivering my product/service?

• Have I allowed for my non-billable hours?

• Do my current prices cover my overheads?

• Do I know my break-even point?

• Am I pricing for profit, or simply pricing to win the work?

If the answer to any of these questions is ‘no’ and you would like to reach out to find out more there are ways for you to get in touch:

How Can We Help?