4 pricing tweaks to increase profit

Natalie Coombe shows how to get your pricing sorted so your profits go up.

Most small business owners I know got into business to have more freedom and flexibility. 

Or more recently, to have more control over their financial stability. 

Yet, often the more successful you become, the more the needs of your business take over your life. Usually for very little financial reward.  

Pricing plays a large role in business success, and in your lifestyle. 

But a recent study[1] found the top four of five reasons businesses failed was related to poor pricing? That’s because pricing touches everything – from how many hours you work, how much support you get, what kind of team you build, how much freedom you have, and, how much money you make. 

In contrast, when you get your pricing right, and you’re able to deliver your products and services profitably, you’re able to:

• Invest in the tools and support to make business enjoyable as well as successful.
• Free up more money for marketing so you can grow your business in a healthy and sustainable way. 
• Spend less time working so you can spend more time doing things that really matter. 
• Think strategically and do the big things that really move your business forward.
• Pay yourself (and your team) generously, without burning out.

The sooner you get your pricing sorted so you’re profitable, the sooner you make your business and lifestyle goals a reality. Here are four simple steps that can quickly make a big difference. 

1. Know your numbers.

Firstly, work out exactly what it costs you to run your business and then budget accordingly. Many business owners either don’t know how much it costs, or only budget for the expenses they currently have, not the future ones they want. 

Secondly, work out which products and services are profitable and which aren’t. Make sure you’re prioritizing and promoting those products or services that make money, and tweaking  those that don’t. 

2. Your salary is NOT a reward

It’s a fixed business cost you need to plan for. This is important because your salary is likely to be two to three times more than your running costs if you’re a sole trader, working from home. 

If you have a team, not planning for your own salary is how you end up the lowest paid member of your staff – despite all the sacrifices you make.   

Instead factor your salary into your pricing, just like you do for every other business expense. 

Step 3. Estimate with honesty

Generally, people suck at estimating how long things take. In business this can show up in two main ways. Firstly, you overlook some of the tasks it takes to deliver a quality result.

Secondly, you remember the task, but underestimate how long it takes to complete. 

Either way, underestimating how long your services take to deliver and therefore undercharging, significantly reduces profitability. You also risk burn out, because if you’re not charging for it, you’re probably not planning for it in your week either. 

To avoid this, simply start by recording the time you and your staff spend on all activities involved in delivery. Once you have an accurate view of how long it takes, start to either charge for all that time or find ways to streamline so you don’t need to. 

Step 4. Know your value

Start charging what your products and services are worth, not just how much they cost to deliver. 

This is called Value Based Pricing. It’s based on what you help your clients to achieve, and how valuable that is to them. It takes you and your “value” out of the equation. It also unlocks the “cap” on your profitability because how much you can earn is no longer limited by how many hours you have or how much a product costs to create. 

Knowing how much a product or service costs to deliver is critical as this becomes the minimum you need to charge. However, knowing it’s value and charging appropriately is a powerful way of building profit.

Natalie Coombe is a pricing expert. www.NatalieCoombe.com