Are You Pricing Your Products/Services For Profit?
Make Sure To Include ALL Costs for Material, Labor, & Overhead
Kids – Kindness – and Unconditional Love! Aiden is now 6 years old and loving all the stuff that makes the Christmas Season so Special. Decorating the house with Christmas lights, putting up the Christmas Tree, the activities at school, and of course making a list of what he wants from Santa. However, Aiden realizes it’s not just about him.
He wants to drop off some extra cans of food in the cupboard at the local food bank… and wants to know what his grandma and grandpa want for Christmas. What is so special is that we get to share in his excitement, kindness, happiness and unconditional love he has for his extended family!
I am excited to share some ways you can make you business more profitable, which should excite any business owner. From our family to yours we wish you all the best this holiday Season.
INSIDE THIS ISSUE
• Pricing for Profit Overhead Costs You May Have Missed
• Bank reconciliation
• Kindness (Tis the Season)
“It is a pleasure to work with Tim. He readily relies on his strong overall business acumen to align, translate and communicate strategic activates into expected financial outcomes. In addition, he identifies and executes key day to day activates to achieve desired financial outcomes. Tim is able to roll up his sleeves and dig into details as well as provide key summaries. He has been an asset to our organization and would be a great addition as a CFO on demand for your company.”
Jeff Minnick – Board Member –
Hitchcock Center For Woman
Cash is Still King…How’s Your Cash Flow?
Pricing For Profit
A difference of 3% or 4% is cost calculation can be the difference between making a profit or incurring a loss. It is critical to the profitability of your business that you make sure you have taken into consideration all your costs,
1. Material costs 2. Labor costs 3. Overhead costs
Most businesses don’t factor in all related costs in each category.
The biggest and most commonly under-calculated costs are in the OVERHEAD COSTS, comprising of:
(a) Financing Costs – are you using a line of credit, short term loan, or do your customers pay by credit card? These are hard costs you need to factor into your pricing.
(b) Administration Costs – there are billing costs, telephone, internet, supplies, staff, marketing, office rent, utilities, etc.
(c) Maintenance Costs – service contracts, vehicle maintenance, website, office cleaning, equipment replacement, etc. There is a formula for calculation of (b) and (c). Contact me if you want help with the right percentage to add on to your pricing.
Kindness (Tis the Season)
Acts of Kindness are easy (and free to do) and makes the other person feel better. My
mother always used to say “be kind” Being kind brings a smile and a happy feeling to everyone.
Here are some examples we can do.
i. Open the door for someone
ii. Say thank you to the clerk and say their name.
iii. Smile at and say hello to a stranger
iv. Pay for the person behind you in line at Dunkin donuts
v. A lot of people are in need, food donations at your local food bank or warm socks/clothing are always welcome. Christmas is a time giving and sharing, for families and friends to get together in the spirit of Christmas as it was meant to be.
All The Best To You And Your Family This Holiday Season.
CERTIFIED PUBLIC ACCOUNTANT
Tim has been in accounting since 1988 and specializes in strategic planning to help small business clients achieve their goals. Through helping establishing these goals and objectives of our clients, we focus on the key performance indicators that will help drive performance and improve bottom line results. Tim has extensive experience in retail, healthcare, non profit, and public accounting.
Tim has an innate ability to cut through the noise and discover the true cause of the problem. He is an expert at implementing cost effective solutions to improve profit and eliminate the source of problem. Bank Reconciliation Successful businesses know and monitor their numbers. Having this information in a timely manner can save you a lot of stress, grief and potentially hundreds or thousands of dollars.
Don’t be lazy on this.
• Yes, you need to reconcile your account(s) every month!
• A separate person from the one paying the bills needs to be doing this.
• Helps prevent fraud.
• Positive pay on your account to avoid fraud.
• All accounts with payments should be reconciled
i. Line of credit
ii. Credit cards
Profit and Loss Concepts
Pricing For Profit
A difference of 3% or 4% is cost calculation can be the difference between making a profit or incurring a loss. It is critical to the profitability of your business that you make
sure you have taken into consideration all your costs, which includes:
1. Material costs 2. Labor costs 3. Overhead costs
Materials Cost: This is probably your easiest calculation. You purchase component parts for the assembly of the products that you provide as well as any packaging and delivery of that product. You’re done except for the added cost for the percentage (usually in the neighborhood of 1%) of returned and/or defective units that need to be replaced.
Labor Costs: Common overhead labor costs include the salaries of personnel associated with the sale, delivery, manufacturing or assembly, and can include managers and staff for quality control.
Overhead Costs: The biggest and most commonly undercalculated costs are in the OVERHEAD COSTS. Most businesses don’t factor in all related costs in each category, comprising of:
(a) Financing Costs – are you using a line of credit, short term loan, or do your customers pay by credit card, costing you an extra 3 or 4 percentage points? These are hard costs you need to factor into your pricing.
(b) Administration Costs – Other overhead expenses in this category are utilities, accounting and bookkeeping, telephone, internet, supplies, staff, marketing, office rent or lease payments, building depreciation, insurance, training, property taxes etc.
(c) Maintenance Costs – service contracts, vehicles and vehicles maintenance, website, office cleaning and supplies, equipment replacement, tools, etc. There is a formula for calculation of (b) and (c). Contact me if you want help with the right percentage to add on to your
How To Calculate Overhead Cost Percentages By Category An easy way to calculate certain categories of Overhead Costs is by taking the yearly costs for a particular category, taking the total yearly spent divided by your annual sales.
Business Category – Marketing: Annual Sales = $1,000,000.
Marketing costs include but is not limited to:
online ads; print ads; direct mail; radio/tv; flyers; displays;
event marketing; free samples; contests; sponsorships; SEO;
telemarketing; affiliate marketing; video; email; etc.
Total Yearly Marketing Costs = $50,000
Overhead Costs Added To Product Price = 5%
Top 4 Ways To Improve Your Profit/Margins
If you want to increase your profits here are the 4 ways to accomplish it:
1. Increase the number of transactions. Easy to say a little more difficult to do. So of the best ways to do it are:
● keep in touch with existing customers so they buy with more frequency and regularity (emails are a great and are a low cost investment);
● create a system for getting referrals;
● have a multi-step follow-up process for qualified prospects;
● get your best customers to leave a 5 star Google Review (over 80% of new customers read online reviews before making a buying decision);
● separate yourself from your competition by creating a unique market positioning. It’s a reason why customers should buy from you and it’s not being the lowest price!
2. Increase the transaction value. There are a number of ways to get your customer to spend more at the point of sale, these include:
● add on a complimentary product to the original purchase
● sell an extended warranty or service
contract if applicable
● upsell to a higher model or service that has more benefits for the customer
● offer a discount on a second or third purchase
● provide a discounted coupon offer if another purchase is made within a specified number of days/month or the original purchase exceeds a certain dollar amount.
3. Reduce Costs. If you can reduce your costs, it automatically increases your margins on every transaction. This requires taking a critical look at your business including:
● analyze the costs of goods purchased
● maximize employee skill and efficiency
● track expenses more diligently
● manage variable expenses
● track your marketing to see what works and what is not producing results
● hire an expert to analyze all aspects of your business
4. Make a plan. Most business owners are reactive to situations rather than being
proactive. Having a plan gives you the luxury of making better business decisions giving you the time to prepare properly on what to do, when to do it and in what order. To maximize profits and margins, here’s what you need:
● a marketing plan to increase the number of transactions and the dollar value of each transaction over the next 12 months broken down quarterly
● a cost reduction plan to identify the areas you need to explore
● a general plan outlining your r business and sales goals for the next fiscal year.