22nd Jul, 2008

Profit and Success, Work from Home, Make indeed Money

Market research is also invaluable in pricing your product or service. Ron Flounders, of Hertfordshire Business Link, which offers free advice to start-up businesses, says that all too often people work out their pricing ‘back-to-front’. They ask themselves how much they need to earn, what their costs are, and then price the product accordingly — regardless of what the market will pay. In fact, what you need to do is market research to establish what price the market will pay, then work out your costs and from that see whether it is worth going into business at all.’

Pricing will depend on a number of factors, including the local rate for the job — which you can establish by looking at competitors, trade journals etc. You can also find out using a questionnaire exactly what people are prepared to pay — a method of operation which Kiren Darashah of the Ben Go Tig children’s clothing company, found exceedingly useful. ‘I discovered from my questionnaire that my proposed price point was too high, but by adapting the designs, materials and finishings, I was able to make clothes at an acceptable price point, which ensured they sold a lot better than they would otherwise have done.’

DODO Marketing Blog

Can you make a profit?

Of course, you also need to ensure you make a profit. That means working out what your costs are. Costs come in two categories — fixed costs and variable costs.

Fixed costs are those costs you have to pay however many sales you make — or even if you don’t sell anything. For instance, a beauty therapist would have to pay for a couch, even if she failed to attract a single customer. A consultant would have to pay telephone bills, even if none of the calls result in any work. Fixed costs often include: stationery, heating, lighting (over and above your domestic use), interest on loans, insurance premiums, leasing or hire payments, depreciation of equipment you have purchased, and advertising expenditure.

Variable costs are the costs that vary according to what you produce. For instance, if you are a potter, clay is a variable cost, because the more pots you make, the more clay you need. The price of clay in itself may vary from day to day and depending on the quantity you buy at once. Variable costs include materials, petrol and postage.

Add all your costs up — then add what you feel is a reasonable margin/labour cost. Does it tally with what the market is prepared to pay ? If not, you will either have to find a way to reduce costs, or re‑think your idea totally. ‘Pricing is very difficult,’ says Carola Brassey, a cake decorator, ‘because people are only prepared to pay so much for a cake, however many hours you may have worked on it. That’s why I always work out how long a job will take before I quote.’

`Working from home means that I can often undercut the competition, because my overheads are less’, says accountant Nick Weedon. ‘People who have expensive premises have to charge for that.’

One problem which people often have when starting off - particularly those who are transforming a hobby into a business - is that they are unwilling to charge friends a realistic rate for their product. This often means the business flounders through their goodwill. If you are setting up a business, you must charge a rate which is both acceptable to the market and covers your costs and still gives you an income. A true friend who wants the goods will be prepared to pay the market rate, rather than using you as bargain basement.

It is also important to be aware of the break-even point. Even if you do not do your books yourself, you should be aware not only whether they are showing you profits or losses, but where those profits and losses are occurring. It is perfectly possible to have one highly profitable item - and one which is holding your entire range down.

`I always worry about people who tell me the reason they will succeed is that they are going to charge less than the competition,’ says Mike Conroy, the Midland’s Small Business Services Manager, `because there may be a reason the competition charge as they do - like that’s what it takes to make a profit. And when people tell me they are going to be cheaper than a major supermarket, somehow I doubt it. Oddly enough, putting up your prices can actually make the business a success because you actually need fewer customers to break even - even if you do lose some. And there are some services where people are suspicious of cut-price rates, because they think cut-price rates equal poor quality. And quality is often the key to success.’

He suggests that if you are having problems with your pricing, rather than reducing prices, try to add value - an extra bottle of wine with your gourmet take-away if the customers buy two in a row or an extra hour of gardening for anyone who buys ten hours worth of your time.

He feels it is also important never to underestimate your costs or the time taken. ‘If a mail order firm promises you that the good will arrive in 72 hours and they arrive in 48, you think they’ve done a marvellous job. But if they promised you the goods in 24 hours and they arrive in 48, you think they are hopeless.’ The same applies to price. Conservative estimates are the best ones.

More about: Profit and Success, Work from Home, Make indeed Money

Posted by: arlene

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Timelines can be difficult to determine as weather can play a big factor in the length of time it takes to build your deck but you should have a reasonable schedule. … Doing Money Management

By: Doing Money Management on July 29th, 2008
at 3:30 am

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