Pricing is a critical aspect of any business, and when you change pricing in your business, you should dot i’s and cross t’s before going live with the new prices. It requires careful consideration. Before you change pricing, it’s essential to calculate a few things to ensure that your business can remain profitable. Here are the top five things you should calculate before you change your pricing:
1. True Cost of Labor
Before setting your prices, you need to know the actual cost of your labor. This includes not only the wages or salaries you pay, but also the additional expenses associated with having employees, such as taxes, benefits, and insurance. Plus, do you know how much time it takes for each job? That should factor in. To calculate the true cost of labor, you can use a labor burden calculator, which takes into account all of these factors and provides an accurate figure.
2. Operating Expenses
In addition to labor costs, you need to calculate your operating expenses. This includes everything from rent, utilities, and equipment costs to marketing and advertising expenses. Be sure to include all of your monthly costs to get an accurate picture of how much it costs to run your business and how much revenue you need to generate to cover these expenses.
3. Cost of Customer Acquisition
Calculating the cost of customer acquisition is another critical factor to consider. This includes all of the marketing and advertising expenses you incur to acquire a new customer, as well as any sales commissions or referral fees you pay. Knowing your cost of customer acquisition will help you determine whether your new pricing strategy will bring in enough revenue to cover these expenses.
4. Cost of Materials
If your business sells physical products, you need to calculate the cost of materials. This includes the cost of raw materials, packaging, and any other supplies needed to produce your products. Make sure you consider any seasonal fluctuations or changes in the cost of materials when calculating this figure. You don’t want to lose money on jobs, or only break even due to rising prices of supplies! It’s something that should be reviewed regularly.
5. Calculate Break-Even Point
This is the point where your revenue exceeds your total costs, and you begin to make a profit. Knowing your break-even point will help you determine whether your new pricing strategy is profitable and how long it will take you to recoup any losses you may incur during the transition.
There are various reasons why you may need to change your prices. Perhaps the cost of materials or overhead has increased, or maybe you want to increase your profit margin.
Whatever the reason, it is crucial to understand how much profit you need/want in your business to earn the income potential you desire.
Understanding Your Profit Margin
To put more money in your pocket and reach your goals, you need to know your profit margin. Determining your profit margin will help you understand how much you need to charge to cover your expenses and make a profit. Your profit coach or accountant can help you calculate your profit margin and guide you through the pricing process.
Consulting with Your Profit Coach/Accountant
Before going public with your new pricing, consult with your profit coach or accountant. They can provide insight into pricing strategies, help you set prices that are viable and profitable, and guide you on how to position your business’s pricing in the market.
Customer Feedback on Pricing
When changing prices, it’s important to consider customer feedback on pricing. Your customers’ voices are influential in determining the acceptance of your pricing strategy. Survey your customers to seek feedback on whether the new pricing meets their needs or if they have any pricing suggestions It’s essential to strike a balance between increasing profitability and customer satisfaction.
Changing prices can be scary but is necessary for any successful business. To ensure a successful transition, understand your profit margin and consult with your profit coach or accountant before implementing pricing changes. Also, consider customer feedback on pricing and choose the right pricing methods for your business. By doing so, you’ll be well on your way to achieving your business goals.
Need help with any of these? Schedule a FREE profit planning session.
