Pricing Strategies - Are You Considering It All?

Pricing…

Are you considering the big picture?

Hey there! 👋 Ever wonder about pricing strategies for your business? You know, there are loads of marketing gurus out there who give advice, host seminars, and do webinars on this topic. But here's the thing: Most of them tend to miss the big picture.

They usually just look at how much your product or service costs to make, suggest a general markup, and then compare it to what the market is willing to pay. Sounds okay, right? But here's the catch: What about all the other stuff in your business?

Are you really covering all your expenses and making the profit you want? That's where we need to dig into some basic math. Stick with me; it's not too complicated!

You might remember the formula for your profit & loss statement: SALES - EXPENSES = PROFIT.

To figure out if your sales can actually cover your expenses and profit goals, we need to tweak that formula a bit.

For an existing business, we can reverse the formula like this: EXPENSES + PROFIT = SALES.

1️⃣ Start by looking at all your operating expenses for the year, no matter how much money you make.

2️⃣ Then, decide how much profit you want to make in a year.

3️⃣ Now, calculate the sales you need to reach that goal.

Here's an example: Let's say you have $80,000 in expenses for 2023 and want to make $40,000 in profit by the end of the year. That means you need $120,000 in sales.

$80,000 (expenses) + $40,000 (profit) = $120,000 (sales)

If you're starting a brand new business, you'll have to estimate your expenses, but the process is pretty much the same.

➡️ Now, go back to your pricing strategy. Think about how many services, customers, or products you plan to sell for the whole year. Does your pricing strategy add up to cover your expenses and profit?

➡️ Let's take the example I just mentioned: If you want to charge $2,500 per month for your services and you need $120,000 in sales, you'll need to have four clients per month for 12 months ($2,500 x 4 x 12 = $120,000). If your pricing strategy gets you more than that, fantastic! You might need to adjust your expenses, profit, or prices if it's less.

If all of this still seems a bit confusing, don't worry! That's what I'm here for – your friendly fractional CFO. I'm here to help you navigate the financial side of your business. So, let's get those numbers working in your favor! 😉📊💼