How Much Should You Charge?

Getting your pricing right is one of the best ways to plan for business success, but how do you know how much you should charge?

First, don’t make a rushed decision; take the time to properly understand the market, your total costs, and how to position your products or services.

Figuring out how much to charge is a big learning curve for any business owner. The answer to how to approach it will fluctuate as circumstances and markets change. It is important to revisit the question throughout the lifecycle of your business.

There is No Magic Formula

All businesses are unique, with an individual offering of products and services. Before you set your pricing, it’s important to look at the whole picture. This will help to ensure you are being strategic and not just following trends.

Gather the Data

To get started, you need to gather as much information as possible. Block out some time to sit down with your business data and strategies. Pricing is essentially figuring out where your products and services are positioned in the market. So keep your business strategies top of mind. It doesn’t have to be a confusing exercise. Just grab a coffee and get started.

Here Are the First Steps to Consider:

1. Record All the Costs Involved in Production

Start by listing all direct and indirect costs associated with your product or service. Direct costs include materials, labour, and production expenses. Indirect costs encompass assets, insurance, licences, and legal fees. This comprehensive list ensures you don't overlook any expenses that could affect your pricing strategy.

2. Consider Your Current Profit Margin or Required Margin

Once you have your total costs, think about your profit margin. Understand the difference between net and gross profit margins. Gross profit margin is the difference between sales and the cost of goods sold, while net profit margin accounts for all operating expenses. Decide what margin is necessary for your business to be sustainable and profitable.

3. Conduct Thorough Competitor Research

Research your competitors thoroughly. Understand the market landscape and what others are charging for similar products or services. Identify your unique selling points (USPs) that allow you to differentiate your pricing. This research helps you position your offerings competitively without underpricing or overpricing.

4. Evaluate Your Offerings

Assess the value-added aspects of your products or services. Consider where your offerings fall on the spectrum from cheap and no-frills to high-end premium. Can you create a range of products at different price points to cater to various segments of the market? This strategy can help you attract a broader customer base.

Revisit and Adjust Your Pricing Regularly

Market conditions and business circumstances are always changing. Regularly reviewing and adjusting your pricing ensures that you stay competitive and meet your customers' expectations. This proactive approach helps you maintain profitability and growth.

Additional Considerations

Understanding Customer Perception

How customers perceive your pricing can significantly impact your sales. If your prices are too low, customers might question the quality of your products. Conversely, if your prices are too high without justifiable reasons, you might drive potential customers away. Balancing perception with reality is key to effective pricing.

Value-Based Pricing

Value-based pricing involves setting prices based on the perceived value to the customer rather than the cost of production. This method requires a deep understanding of your customers' needs and how much they are willing to pay for the benefits your product or service provides. Value-based pricing can often lead to higher profit margins.

Psychological Pricing

Psychological pricing strategies, such as setting prices just below a round number (e.g., $9.99 instead of $10), can influence customers' buying decisions. This tactic can make prices seem lower than they actually are, potentially increasing sales.

Discounts and Promotions

Strategically use discounts and promotions to attract customers and boost sales. However, be careful not to rely too heavily on these tactics, as they can devalue your product and create an expectation for lower prices. Use them sparingly and strategically to drive short-term sales and customer acquisition.

Stay Ahead of the Game

Determining how much to charge for your products or services is a crucial aspect of running a successful business. By thoroughly understanding your costs, profit margins, market conditions, and customer perceptions, you can develop a pricing strategy that supports your business goals. Remember, pricing is not a one-time decision but an ongoing process that requires regular review and adjustment.

For more personalised assistance in developing a pricing strategy tailored to your business needs, contact us at First Class Accounts Ovens & Murray and Busy01 Consulting. We're here to help you navigate the complexities of pricing and achieve long-term business success.

Top 8 things to outsource in your business

Scaling your business requires a strategic shift from being deeply involved in every task to focusing on high-level planning and growth. To achieve this, you need to spend more time working on your business rather than in it.

This means dedicating your energy to strategic initiatives that drive growth, innovation, and long-term success. However, the day-to-day operational tasks can often consume a significant portion of your time, making it challenging to focus on bigger goals.

Finding ways to leverage your time effectively is critical, and one of the best strategies to achieve this is through outsourcing. Outsourcing allows you to delegate tasks that are either not within your core skill set or those that you simply do not enjoy. By doing so, you free up valuable time to concentrate on areas where you can add the most value.

Outsourcing these tasks to professionals can enhance the quality and efficiency of your operations, ensuring that critical functions are handled expertly.

Things you should consider outsourcing in your business:

1. Payroll

Managing payroll involves complex calculations, tax withholdings, and compliance with regulations. Mistakes can lead to hefty fines and unhappy employees.

Outsourcing payroll ensures accuracy, saves you time, and can even reduce costs. While utilising a payroll product is a great option, a professional payroll service will handle everything from wage calculations to tax filings, allowing you to focus on your core business activities.

First Class Accounts Ovens & Murray can help: We offer comprehensive payroll services that ensure your payroll is handled accurately and efficiently. 

2. Bookkeeping

Do bookkeeping tasks often infiltrate your evenings or weekends? Does the stress of these tasks piling up occupy your mind?

Bookkeeping is essential but can be time-consuming and stressful, especially if it spills into your personal time. By outsourcing your bookkeeping, you not only save time but also gain peace of mind knowing that your financial records are up-to-date and accurate.

At First Class Accounts Ovens & Murray, our bookkeeping services are designed to take the load off your shoulders, providing you with accurate and timely financial information. Let us handle your bookkeeping so you can focus on growing your business. Get in touch with us today to find out more.

3. Virtual CFO

Budgeting and forecasting are crucial for any business but can be challenging without the right expertise. A virtual CFO specialises in these areas, providing detailed budget analysis and accurate financial forecasts that help you plan for the future. They offer strategic insights, monitor your financial health, and identify opportunities for growth, ensuring you make informed decisions.

At First Class Accounts Ovens & Murray we offer comprehensive budgeting and forecasting services to help you plan effectively and make strategic decisions. We use cutting-edge software like Futrli to provide you with clear, actionable financial insights. Contact us today to learn how we can support your business growth.

4. Digital Marketing

From your content strategy to your social media accounts, if this is not a strength of yours, outsource it! There are many freelancers who have multiple clients at this level, who’ll likely be more knowledgeable regarding SEO and much more effective and efficient in general.

5. Graphic Design

Your brand is a key reflection of your product offering. If you don’t have the skill, software and time to do this well, you’ll potentially damage your brand.

6. Scheduling and administrative tasks

A Virtual Assistant can help you manage anything from your appointments to flights, emails and beyond (virtually anything admin). At a lower level, consider adopting software that’ll automate or minimise processes, such as self-booking appointment apps where your clients can schedule a meeting with you, e.g. Calendly.

7. Customer feedback

Many businesses miss this valuable opportunity to connect with customers and improve their experience. A Virtual Assistant can help, but there are also apps (such as Ask Nicely) that automate the process of asking for feedback; directing happy responses to leave you Google reviews and negative responses back to you to quickly resolve!

8. Inventory management

Too much stock can cause cashflow issues and affect sales price (due to resulting discounting), but not enough equals lost sales. Outsourcing inventory management can help you minimise stock-carrying costs and allow you to focus on more important things.

While outsourcing takes a little bit of setting up, it’s worth the short-lived pain for massive gain. We don’t have to be jacks of all trades. In fact, this thinking often leads to begrudgingly doing many things poorly rather than doing a few things really well – and enjoying doing them.

Tempted to start outsourcing some of your tasks to free up your time? We can help by taking the first three roles off your hands! We work with a number of our clients in this way, allowing them to focus on what they do best.

Work to your strengths, outsource the rest! Need help? Get in touch.

A business budget will help with your financial decision making

Budgeting is about estimating your revenues, projecting your expenses and detailing the allocation of funds, so you stick to (and don’t overrun) your agreed budget ceiling.

How does budgeting affect your business?

Having a clear, agreed budget gives you a structured framework for your financial decision-making. It’s a practical way to control your costs, monitor performance and adapt your strategic and financial decisions to meet changing economic conditions.

Using budgeting helps your business in a number of ways:

Better control over your finances

Budgeting gives you a clear roadmap for managing your company’s finances. Sticking to that budget helps you maintain control over expenses, reduce wastage and make the very best of your resources.

Achieving your financial and strategic goals

Your budget helps you to set and track financial goals, making it easier to align your business strategies with your desired goals and outcomes. It’s a great way to boost growth, profitability and debt reduction.

Improved control over your cashflow

Effective budgeting helps you anticipate any cashflow fluctuations. That’s a bonus that helps you plan for both lean and prosperous periods, making sure you have the funds to cover expenses and seize opportunities.

Allocating your resources

Budgets are useful for guiding how and where you allocate your resources. From your one pot of cash, you can decide whether to prioritize investments, marketing efforts, operational improvements or business growth.

Keep track of your performance

Comparing your actual financial results to your budgeted results helps you quickly assess your performance as a business. You can look for variances, make timely adjustments to stay on track toward your goals.

How can Busy01 Consulting and First Class Accounts Ovens & Murray help you with budgeting?

Being in control of your expenses, spending and predicted revenues sits at the heart of your financial management, giving you a framework and set budgetary goals to aim for, track against and (hopefully) achieve.

As your bookkeeper, we’ll help you set up budgets for your strategic business plans, with clear tracking and reporting to keep you on the ball and meeting those targets.

Get in touch to chat about budgeting.

Christmas gifts for your customers and team

As the festive season approaches, it’s a great time to let your customers and team members know how much you appreciate them. 

In a year that has presented its challenges, when it comes to deciding on Christmas gifts for your customers and team, finding the right balance between generosity and sensitivity is important. It’s not easy to know how much to spend or whether it’s appropriate to throw a party.

Let's explore some Christmas gift ideas that go beyond the traditional, and are appropriate for both your clients and team.

The traditional route: gifts, cards and donations

The traditional approach often involves food-related gifts like hams, hampers, or bottles of wine or spirits. While these can be easily ordered online and delivered, it's essential to consider potential delays and the possibility that recipients might be working remotely. To navigate these challenges, opt for non-perishable items or those with extended shelf life.

For clients who you have a close relationship with, consider personalised gifts that align with their personal interests.  This more personal approach demonstrates your attentiveness and can strengthen your professional relationship. Additionally, a handwritten card adds a personal and cost-effective touch that resonates well during the holiday season.

Another option is a making a donation on behalf of your clients or team members. This adds a meaningful element to your gift-giving as many people really appreciate an email or card that lets them know you’ve donated money to a charity on their behalf. For that extra touch you can include details like, “The local foodbank will use this donation to feed families on Christmas Day.”

Building Stronger Connections: Coffee, Lunch, and Face-to-Face Interaction

Treating high-value clients to a coffee or lunch can be a powerful gesture. This not only allows for a more personal connection but also creates lasting memories. While this approach may involve a higher cost, the impact on client relationships can far exceed that of a traditional gift.

Consider the preferences of your team when deciding on gifts for them. While hampers are a classic choice, it may not be universally preferred. A Christmas bonus is appreciated, but it's essential to consider the tax implications. A supermarket voucher, on the other hand, retains its full value, providing a practical and tax-efficient alternative. Engage with your team to understand their preferences; some may value a paid day off more than a physical gift.

Budgeting for Generosity: Tailoring Gifts Based on Relationships

Working out how much to spend on each client can be challenging. One approach is to categorise clients based on their spending with your business and their overall value to your business.

Consider giving high-value clients more substantial gifts, while smaller clients may receive more modest yet thoughtful tokens of appreciation.

Need help with Christmas budgeting?

If you find yourself wondering how much each client has spent or are unsure about your Christmas gift budget, we're here to assist.

Get in touch with us, and we'll analyse the numbers to provide insights tailored to your business. We'll help make sure your generosity aligns with your financial capabilities, making this festive season memorable for both you and your clients.

Get in touch and we’ll run the numbers to give you the insights you need.

Making it easier to get paid

Making sure you get paid on time is crucial to your success.

The process of making sales and generating revenue lies at the heart of any business model. But you can't manage your cashflow effectively or raise any profits if customers don't actually pay their invoices.

The easier you can make it for customers to pay you, the faster you'll see cash coming into the business. That’s good news for your financial position, your ability to cover your operational costs and your capacity to fund the growth and expansion of your business.

So, how do you speed up those payments and make sure you get paid on time?

Set out clear payment terms

Your payment terms are the starting point for healthy payment times.

These terms set out when you expect to be paid and form a legally binding contract with the customer.

You may expect immediate payment on receipt of the invoice. Or you might set out a specific number of days that the customer has to pay the invoice (generally 30, 60, 90 or 120 days, depending on your industry). This is sometimes called ‘trade credit’ and allows your customers to pay for goods and services at a later, pre-agreed date – helping them to spread the cost.

Your payment terms should also include details of any late payment penalties.

If the customer doesn’t meet your agreed payment times, most businesses will add a 1% to 1.5% monthly late payment fee to the outstanding bill. This acts as a great incentive for the customer to pay the bill, before the penalty fees start mounting up.

Invoice customers as soon as you can

In a business-to-consumer (B2C) environment, your customers will generally pay for their goods and services immediately. But when you’re working in the business-to-business (B2B) world, you’ll need to send your customer an invoice, asking for the money to be paid.

A customer can’t settle their bill until you send them an invoice. So, it’s vital to send out the invoice as quickly as possible, so you can minimise the gap between doing the work and being paid for the work.

In some industries, the project will be broken down into multiple invoices, paid across a period of time. This makes it easier for the customer to pay, and means you (as the supplier) don’t have to complete the project before receiving the money you’re owed.

Ideally, you want your invoices to go out as early as possible. This allows your payment terms to kick in and makes it easier to predict when cash will be coming into the business.

Be organised about your payment admin

Getting paid is a process – and the more organised you make the process, the quicker the payment will be received.

When you send out the invoice, make sure you send it to all the relevant people in the payment chain. This will usually be:

• Your main contact at the client – the person who you usually deal with
• The person who will approve the bill – the person who will green-light the payment
• The finance team – the person (or people) who will actually action the payment.

It’s also a good idea to quote any relevant purchase order (PO) numbers that the customer has raised, and to give a very clear description of the work done, or the goods purchased.

Embrace the available payment technology

Invoices used to be hard-copy printed bills, but in the digital age the vast majority of companies will send out e-invoices.

Electronic invoices are easy to raise (usually from your accounting software or project management app) and can be emailed out instantly.

Doing everything in the digital realm also makes it easier to keep records and keep track of payments.

Many e-invoice systems will also let you add a variety of different payment options for the customer.

You could just include your bank details and wait for the customer to make a direct payment to your account. But you can also include payment buttons in the e-invoice that give customers the option to pay via digital payment gateways, like Stripe or GoCardless.

Offering more ways to pay makes the whole process more convenient for your customers. And it will generally result in faster payment times as a result.

If you want to speed up your payment times and boost your cashflow, please do get in touch. We can help you streamline your payment processes and embrace the latest in payment tech.

Coping with the skyrocketing cost of living

Whether it’s refilling your petrol tank or paying at the supermarket checkout, the higher cost of living is hitting every household hard.

Across the world, everyday essentials are surging in price, up 7.2% year on year across the OECD. Unfortunately, experts predict that prices will keep rising for at least the rest of the year.

What can you do to try to keep up with the increasing cost of living?

Here are our 12 top tips

Look for ways to earn more

• Grow your business’s profitability (talk to us about improving your profits) or ask for a pay rise.
• Take in a boarder or flatmate.
• Sell your unwanted items online.

Cut back where you can

• Prepare more meals at home and spend less at cafés and restaurants.
• Create a budget and keep your spending under control.
• Reduce the amount of meat you buy.

Find ways to use your car less.

• Cancel your credit cards and your buy now pay later accounts.
• Review all your ongoing expenses like utilities, insurance and subscriptions – cancel, switch providers or get better deals.

Invest in your future

• Think about investing in ways that are likely to outperform inflation – both shares and the property market have historically provided returns higher than inflation.
• Start a new business, launch a new product or service, or try a side hustle.
• Teach yourself about money and finances using free tools online and books from the library. Better money management will help you make the most of what you’ve got.

If prices rise by 7% this year, it won’t be easy to increase your income by the same amount. But if you can increase your income by 5%, then make up the rest through savings, while also investing for the future, you can still come out on top once inflation settles down and prices stabilise.

Worried about budgeting, cash flow or forecasting?

Talk to us. We have years of experience through many economic cycles, including previous periods of high inflation – and we’re always here to help.

Xero's short-term cashflow feature for businesses

Business cashflow is simply money coming in and money going out of the business. Your outgoings will include things like rent, payroll, taxes and supplies. Your income will be revenue from sales but might also include investment funds or the sale of assets.

For most businesses, income and expenditure don’t always happen at the same time so focussing on strong cashflow management will help you prepare for the shortfalls and also manage surplus income.

Cashflow reports allow you to look back at cashflow in your business. This can uncover cashflow patterns over time and show you how much money you need to run your business each month.

Cashflow forecasts look forward by combining payment dates and due dates for invoices, to give you an idea of what your cashflow will be like going forward.

Managing healthy cashflow

Xero’s short-term cash flow feature gives you an up-to-date dashboard view of your organisation's cashflow. You can choose multiple bank accounts and see the projected cashflow over 7-30 days. The more information you include, the more accurate your forecast will be.

Healthy cashflow management gives you better control, so you are more prepared for growth or for the unexpected. Read the article at Xero Central to learn more about this feature.

We can help. Talk to us about improving your business cashflow.

Understanding working capital to maintain business success

If cashflow is the lifeblood of your business, then working capital is the health check you should regularly undertake to keep your business alive. It is important for you to have an understanding of your working capital to maintain business success. Regularly checking working capital will play an essential part in maintaining business success during these times of greater economic insecurity.

What is working capital?

Working capital is your current assets minus your current liabilities and measures the surplus (or deficit) you have to keep your business afloat without needing to sell assets, borrow more, or add your own money into the business. The more working capital you have, the easier it is to fund growth or weather any downturns.

To calculate your working capital: Cash + debtors + stock + work in progress - creditors - taxes owing

For example, if your business had the following balances:

Cash $150,000
Debtors $120,000
Stock $100,000
Creditors $45,000
Taxes owing $25,000

Then your working capital would be $300,000 ($150,000 + $120,000 + $100,000 - $45,000 - $25,000).

If the business had an overdraft of $150,000 rather than a positive cash balance, the working capital would be zero. This means the business would have no cash to cover any slowdown in debtor payments or a downturn in sales (which would lead to higher stock levels). Worse, the business could be in serious trouble for trading while insolvent.

It’s likely your working capital has taken a hit due to Covid-19. Now is the time to review your processes and boost your working capital.

Consider the following strategies:

Build up enough cash to cover at least 2 months’ sales value

One of the key learnings from lockdown was how important it is for businesses to have enough cash in the bank to get them through a shutdown. Use the average sales value for the last six months to calculate the amount you’ll need, then manage your expenses to build your cash stocks up to this level.

Renegotiate your debt

If your business has an overdraft, could the core debt be negotiated into a term loan? Have you spoken to your bank manager about options for managing your debt as a result of Covid? We can work with you and your bank manager to determine your best finance options.

Negotiate with suppliers

Speak to your suppliers and see if you can negotiate better terms. This might be a discount for early payment or longer payment terms. They’ll be suffering too, so work together to come to the best arrangement for you both.

Set aside money for taxes

Calculate the percentage of sales you need to put aside for taxes and put this aside in a separate bank account so you have the cash to cover tax payments as they fall due.

Inject sufficient funds

If the above strategies don’t boost your working capital sufficiently, you’ll need to invest your own funds into your business to cover your working capital requirements.

Even with the many challenges of a post-pandemic economy, undertaking regular working capital checks is an effective way to help increase your business’s cashflow. We can help you calculate your working capital requirements and identify strategies you can implement to increase your working capital.

“Change is not a threat, it’s an opportunity. Survival is not the goal, transformative success is.” - Seth Godin

We can help. Talk to us about your working capital.

Your critical numbers

Establish your critical numbers; to improve the KPIs that have the biggest impact.

The Covid-19 crisis has created a “new normal” for businesses. Traditional ways of working are being challenged and we now need to innovate, adapt, re-engineer, and reinvent the way we work. Lockdown gave us time to consider our options, but two important questions often remain unanswered:

1. How will we know if we are on track or not?
2. Are our new plans actually working?

It goes without saying that our success needs to be measured. But it’s important for us to know what to measure. Your critical numbers are the levers that, if pulled, make the biggest impact to your results. Choose four or five critical numbers to measure. These may vary between businesses, for example, most businesses should know their minimum viable sales number per day or week for survival. Likewise, knowing the gross margin needed to cover your overhead costs and living expenses will be critical for many businesses.

Some tailored critical numbers might be:

Once we’re clear on the critical numbers we should be measuring, we need to establish how to measure them. Having real-time, cloud-based data is the new standard, so having the right software is important. The way you capture data may require additional planning. For example, you may need to make changes to your coding or reporting structure to measure your sales or margin by product type to assess the viability of different product lines. These changes will help to give you peace of mind and certainty that you’re on track. After all, you can’t manage what you don’t measure.

“Measurement is the first step that leads to control and eventually to improvement.” - James Harrington

We can help.  If you need help working out what your critical numbers are or how to measure them, talk to us.