In today’s episode on The Render Podcast, Cam is the guest! Yes, you read that right! Cam sat down with Karen for the GoodShuffle User Summit and talked about Pricing for Profitability in Your Business. Having been in the industry for a decade now, Cam has quite the background for how running your business can turn into success and that starts by making sure you are getting a profit from your pricing.
We know that pricing to make money can feel stressful and we all want to make money, right? However, you cannot just throw a price tag on something and call it a day. Strategy is key to succeeding in pricing your products or services, and before you can even do that, you have to know what it is going to cost to run your business.
Hey friends, we are diving right in! We know that pricing to make money can feel stressful and we all want to make money, right? However, you cannot just throw a price tag on something and call it a day. Strategy is critical to succeeding in pricing your products or services, and before you can even do that, you have to know what it is going to cost to run your business.
If these numbers are not sorted out, you could be severely underpricing your products or services and never actually making money. Likewise, overpricing will create fewer bookings if your close competitors are swooping up all of the clients and sales.
For us, we have three main components to our budget that are good to know when it comes to running your business:
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
— COGS (Cost of Goods Sold) — The expenses that are due to the actual event themselves. So think paint, vinyl for a graphic, and the actual delivery workers. This is the cost of doing the business that you are booking.
— Hard Costs — Software, Rent/Mortgage, Utilities, Vehicle Payments, and more! These expenses are your hard expenses, meaning you can expect these payments each month.
This is imperative to know. How are you tracking your expenses and finances? Lucky for you, we just did an episode not too long ago in our Finance Series that talks about tracking your finances by daily tasks, weekly tasks, and monthly tasks. You can listen to that episode here and learn more about how we do this!
The items that you are buying to rent out for your, in our case rental company, should be an asset because they will continue to turn a profit for you in the coming years. If you were to sell your business, you would consider the assets of your business to help calculate the value.
If we are in a maintenance type of year, meaning that we are maintaining what we are doing from the previous year, we are going to set our net profit in what we can spend to add new inventory to our business. About 10% – 30% should be spent on new inventory and the remainder of your net profit could be put toward bonuses for your employees.
If we are in a growth year, we budget how much we want to grow within that year. We create a plan to maintain our costs to achieve that goal. Specify in your financial plan how you want to grow your business and by doing so, you can decide whether updating your pricing or your inventory can help you do this.
Now that we have talked about budgets, we are going to talk about how to price your product. We have three strategies that should be used in conjunction to price your inventory products.
Take the price that you are purchasing your product for and divide it by 3, then by 4, and then by 5. From here you will determine what that price would get you. Why? This means that it takes that amount of time to rent the product before you see a profit on your purchase. There is one exception — if we are purchasing an item and we know it is going to take 7 times to rent to make our profit, it needs to be within 2 months of having that item. Some items are worth the exception and you have to gauge that within your business.
This is not an excuse to secret shop, but you should know what your competition is pricing their products at. You should not go seeking to match exact costs, but we do need to have a healthy understanding at what the going rates are. If you have a farm table and you are pricing it at $150 but your competitors are pricing the same product at $75, you are going to get beat over and over again.
If you found a steal of a deal and found a sofa for $50 at an estate sale, you have to use common sense. If you find a great deal, look at the other products similar that you already have and price match those items to help gain a profit quicker.
Last but not least, how are your clients intellectually looking at your pricing? As humans, when we see a price, our brains tell us if it is a good buying decision or a not-so-great decision. If you see something priced at $40 but do not buy it due to it being $40, your brain is telling you that it is not a good purchase choice. The next time you visit, that same item is marked down to $35 and you are considering buying it because it is cheaper than when you first saw it.
If you are looking to match or lower your pricing but do not want to go down a full $5, consider the number 7. Ending your pricing with this number still tells the brain that this is a good price, and in the long run, you are not losing much money on this product. The number you put on the end of your product does matter whether you are looking online or in real life. You do not have much time to grab the client’s attention so they decide to buy your product, so pricing accordingly to make the sale is a big part of your business.
At the end of the day, we have to run our businesses like businesses and the profit makes that go a long way. We hope you enjoyed learning about our tips and tricks for pricing your products to see your business grow and succeed. Don’t forget to check out our Resource Shop with all of our templates and courses available to you to help your business grow and succeed. Until next week, friends!
Raven Scott | Podcast & Marketing Coordinator
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