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Pricing Strategies

Pricing Strategies

What's the best way to establish a price for your products or services?

Getting your pricing right is crucial. Put your prices too high and your customers may desert you; put them too low and you’ll generate sales but won’t have a large enough profit margin to create healthy revenues and cashflow for the business.

Whether you’re a new startup, or an established business, choosing the right pricing strategy is a fundamental part of designing your business model. As such, pricing is something that’s likely to take considerable thought, research, planning and analysis over the lifetime of your products.

So, how do you know what to charge for each product and/or service? And how do you decide a price point that’s both competitive AND profitable for the business?

Costs, margins and hitting the right price point

For your business to be viable, you have to know for certain that you can:

  • Find and win customers
  • Meet your project sales and revenue targets
  • Cover your running costs, overheads and operating cashflow
  • Generate profits and get a return on your investment.

But how does this all come together to define your final sale price? The answer is to have a granular understanding of your costs, your margins and your pricing – and also to know who you’re selling your product/service to.

Different ways a price can be worked out

Cost price

When you make a product, or deliver a service, you need to spend money to do that. This expenditure includes the raw materials, the business overheads and the labour costs of creating your product/service.

By adding up all these expenses and dividing them by the number of units you delivered, you get your cost price. In other words, it’s the total cost of the unit before any margin or profit is added.

Wholesale price

Your margin is the amount you add on to your cost price to make a profit.

So, if my cost price per unit is $5, I might sell each unit to a wholesaler at $7.50. By doing this, I recover the cost of making the unit (or ‘Cost of Goods Sold’ in accounting terms), and I make a profit of $2.50 on each unit I sell to my wholesale client. This is the wholesale price.

The wholesaler will then add on their own margin in order to sell it to a consumer at. Using the example above, if the wholesaler sold each unit for $10. You make $2.50 and the wholesaler makes $2.50.

Retail price

This is the price when you sell the product to a consumer. The retail price factors in margins and comparing prices within the market to ensure you're competitive but still turning a good profit.

So, if you sell direct to a consumer, at a price of $10, and your cost price is $5, then you’ll make $5 profit for every unit you sell.

This contrasts with $2.50 profit per unit if you sell to a wholesaler, although you’re likely to sell in bulk to a wholesaler and will make your profits through this economy of scale.

Premium or economy pricing

Knowing how to position your product/service in the market is important.

Are you selling a premium product, with a high price tag? Or are you selling an economy product, with a low price point? There’s a big difference between selling a limited number of units at a high price (and high profit), and selling a big number of units at a cheap price (low profit but larger sales).

Positioning your prices between these two polar ends of the pricing spectrum isn’t easy, and will take time, experience and plenty of experimentation to get right.

Knowing when to discount or increase your prices

Your price isn’t a static thing.

Costs of production will increase, markets will change and sales campaigns will require discounted prices. So it’s vital to continually assess, review and update your prices.

For example, you could run a discount to increase sales, decreasing your margin and selling more units. Or you could choose to put your price up to increase your margin and make things more profitable.

What’s important here is to know how price-sensitive your customers are, how loyal they are to the brand, and what they’re willing to pay for your specific products/services.

Pricing is a complex and difficult area to get right, so working on your pricing is something that should be done on a regular basis.

If you’d like to review your current pricing strategy, please feel free to talk to us. 

Work from Home Shortcut Claim Extended

Work From Home Shortcut Claim Extended

Good news if you work from home.

The shortcut method* for calculating work from home deductions has now been extended to 30 June 2021. (*Practical compliance guideline PCG 2020/3.)

The guideline covers working from home and incurring additional running expenses in relation to your income-producing activities during the COVID-19 pandemic.

Originally introduced in April 2020, the guideline was first due to expire on 30 June 2020 (which was then extended to September 2020, and then to the end of December 2020). Interestingly, unlike previous extensions, the PCG no longer states whether further consideration will be given to extend the latest end date.

The shortcut method

The shortcut method contained in the PCG provides a rate of 80 cents per hour for running expenses and only requires taxpayers to keep a record of the number of hours worked from home. This could be in the form of timesheets, rosters, a diary or similar document that sets out the dates and hours worked. A notation stating “COVID-hourly rate” will need to be placed next to your deduction for home office expenses in the 2019/20 and 2020-21 return.

All told, the PCG now applies from 1 March 2020 to 30 June 2021. Taxpayers eligible to use this new shortcut method are employees and business owners who:

  • work from home to fulfil their employment duties or to run their business during the period from 1 March 2020 to 30 June 2021 and
  • incur additional running expenses that are deductible under s 8-1 or Div. 40 of the ITAA 1997.
    Running expenses include: electricity, gas, computer consumable such as printer ink, cleaning expenses, telephone, internet, depreciation on computers and other equipment (e.g. chairs, desks, filing cabinets).

Taxpayers who use this method, cannot claim any other expenses for working from home for that period.

Example

Jay is an employee who is working from home as a result of COVID-19. He purchases a computer on 5 April 2021 for $900. He marks in his diary when he commences and finishes work each day and also the length on any breaks he takes. All told, from his records he calculates that he worked 355 hours through to 30 June 2021.

Provided he retains his diary entries and receipt for the computer purchase, Jay’s 2020-21 deduction under the new shortcut method is $284 (355 hours x 80 cents).

Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method, and must use the pre-existing methods as follows:

Method 2 - the fixed rate method. 

Under this method, you claim all of the following:

  • a rate of 52 cents per work hour to cover heating, cooling, lighting, cleaning and depreciation of office furniture
  • the work-related portion of your actual phone and internet expenses, computer consumables, stationery, etc
  • the work-related portion of depreciation on a computer, laptop or similar device.
Method 3 – the actual cost method. 

Under this method, you claim the actual work-related portion of all your running expenses, which need to be calculated on a reasonable basis.

The methods are not mutually exclusive across the financial year. It may be the case that you use more than one method during 2019-20 and 2020-21.

For example, you could choose methods 2 or 3 for the period July 2020 through to February 2021, and then choose the shortcut method for the period from March through to the end of June 2021.

Feel free to talk to us if you need more information.

proactive business

Tips to being a proactive business

Tips to being a proactive business

Recent times have certainly shown us that the future path of your business can change in an instant. Usually, due to influences that are far beyond our own control.

The Covid-19 pandemic and the ongoing global economic recession have both had a negative economic impact on the business world. So, when a challenge arises, you need to be ready.

The key is to be proactive. Be prepared, have a ‘Plan B’ and react in a proactive way to the uncertainty. But what elements of your business should you focus on to get your downturn plan ready?

How to be a proactive business

To keep your business afloat, you’ll need to be agile, innovative and resourceful. And being flexible in the face of adversity is also likely to play a big part in your survival. 

No business owner has all the answers, and there are some important steps to take if you’re going to overcome the challenges of a downturn.

Proactive steps to take will include:

Enhancing your business knowledge

Knowledge is power, and being in control of your business data gives you that knowledge. The latest cloud reporting tools, like Futrli, help you to understand the financial numbers and forecast the future path of the business, allowing you to make truly informed decisions.

Improving your cashflow

During a downturn, money will be tight and your cashflow position is more likely to be poor. To improve this, you need to be proactive about reducing overheads, billing promptly, following up on overdue invoices and making sure that the minimum amount of cash flows out of the business, and the maximum flows in.

Negotiate with your suppliers

If you can wrangle a better deal from your suppliers, that goes a long way to enhancing your cashflow position. Negotiate with your suppliers to agree on better terms, or cheaper prices. And talk to your landlord about a reduction in rent – or even a rent holiday if the situation is extremely dire.

Accessing additional funding

When your cash reserves get tight, there may be a need to look for additional funding. This could mean asking your bank manager for an extended overdraft, approaching business lenders for a loan, or even looking at attracting private investors or private equity firms that may want to pump money into the business – although you’ll need a strong business plan for investors to be willing.

Evaluating your market offering

To generate enough revenues to survive, you need your products and/or services to be selling. To that end, it’s worth evaluating your market offering and making some changes. Do some products deliver a much higher return than others? If so, you could make more money by focusing purely on these products and having a tighter and more profitable product range.

Evolving your marketing and sales

Communication with your customers during a downturn is vital. Keep them in the loop and let them know that your products/services are still there for them. And reevaluate your marketing channels to make sure you’re hitting the right audience. Is your online presence as good as it could be? Are you providing enough information on your website and social channels to help solve your customers problem? If not, what else could you do to bring in more enquiries and sales.

Learning to pivot and diversify

Some sectors, for example, the travel and hospitality sectors, were badly hit by Covid. If this happens, you may need to pivot into a new niche or sector to find a new audience and more revenue streams. You can also diversify your product range to meet the needs of a wider range of customers, bringing in more revenue streams and bumping up your cash position as a business.

It’s all about having that Plan B in place. When (and if) a downturn hits, you’re then primed and ready to respond.

The better prepared you are, and the faster you react, the more likely it is that you’ll ride out challenging times successfully.

If you’re looking to improve your business planning, or improve your financial model, come and talk to us.

Leadership lessons: JUST FOR ME

Leadership Lessons

JUST FOR ME

There are thousands of books written about leadership. We’ve distilled some lessons from some of them into the acronym JUST FOR ME. Nine things within your control to help you become a more effective leader.

1. Just do it

So often we get in our own way of implementing our ideas. Stop limiting the business’s potential and prioritise your time to ensure the important things get done.

2. United vision and values

Your vision is where you want the business to be in the future; your values are the compass that drive your behaviour to get there. Clarify and articulate these ASAP.

3. Safety

It’s a leader’s job to ensure physical and emotional safety for their team at work. This goes beyond legal obligations; the safer employees feel at work, the more productive, innovative and loyal they’ll be.

4. Teamwork and Trust

Form a team of people who are smarter than you in different ways, using your collective expertise to achieve results impossible to achieve alone. Build a culture of trust so your team know they can rely on you and that the feeling is mutual.

5. Focus

Bring focus to each team member’s individual contribution towards achieving the business goals and vision. Provide clear key performance indicators to ensure everyone knows what to focus on.

6. Opportunity

Look for the opportunity in every mistake, challenge and difficult situation. These are key sources of learning.

7. Resilience and Resourcefulness

Resilience helps you recover quickly from difficult situations; resourcefulness helps you find quick and clever ways to overcome difficulties. Build resilience and resourcefulness in your team and yourself.

8. Mindset

This is the attitude you bring to your role as leader. Do you have an abundance mindset or scarcity mindset? Do you take ownership, accountability and responsibility for your actions? Your mindset has a huge impact on how you and your team feel about coming to work each day.

9. Empathy and Energy

Empathy is the ability to see things from another’s perspective. For example, instead of disciplining a team member for struggling, first seek to understand why they’re struggling, then offer support and training. Increased empathy increases energy across the team and the business and improves results.

Take these nine factors and make a plan for how you can develop your leadership skills. Which one will you focus on first? 

“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying fundamentals.” - Jim Rohn

JobMaker scheme – key points

JobMaker Scheme - Key Points

The JobMaker hiring credit scheme is now open for registration.

Here’s a summary of some of the key points around the JobMaker scheme.

If you are considering applying for JobMaker, please take into consideration the administration of JobMaker can be quite complex, so we don't recommend attempting to manage this on your own. Talk to us about how we can assist.

For background, JobMaker was announced by the government in the October 2020 federal budget, and will operate until 6 October 2021.

Key points:

  • Key to the hiring credit scheme is that employers must have added additional employees and also have increased their payroll during the relevant JobMaker period, as compared to a baseline date.
  • The hiring credit is backdated to 7 October 2020 (applying to new employees from that date) and will provide eligible employers with the following payments for up to 12 months for new jobs created from that date.
  • Eligible employees must work an average of at least 20 hours per week over a JobMaker period for the employer to qualify for the payment in respect of that employee. They must have commenced employment between 7 October 2020 and 6 October 2021, were aged between 16 and 35 years at the time they commenced employment, and worked an average of 20 hours a week for each whole week the individual was employed by the qualifying employer during the JobMaker period.
  • The JobMaker payments for up to 12 months for new jobs created are:
    a) $200 a week for hiring a worker aged 16 to 29 on at least 20 hours a week during the JobMaker period and
    b) $100 a week for those aged 30 to 35 on at least 20 hours a week during the JobMaker period.
  • Employer eligibility criteria are broad. Some employers are specifically excluded. These include:
    • employers who are claiming JobKeeper
    • entities in liquidation or who have entered bankruptcy
    • commonwealth, state, and local government agencies (and entities wholly owned by these agencies)
    • employers subject to the major bank levy, and
    • sovereign entities (except those who are resident Australian entities owned by a sovereign entity).
  • Entitlement to a hiring credit payment is assessed in relation to three-month periods known as “JobMaker periods”. These periods are relevant for the purposes of the additionality criteria (refer first point).
  • Claims can only be made during the claim period. No exemptions or extensions are available. There are strict dates by which claims for a period must be reported by. The credit is paid every 3 months in arrears to employers.

As mentioned at the start, this is a summary of some of the key points around JobMaker. There are many other requirements and a thorough understanding of those requirements are needed to ensure your JobMaker administration is correct. 

Talk to us if you need support in applying for or administering JobMaker.

Leveraging your technology


Leveraging your technology

The decisions you make in your business are only as good as the data you use to make them. The more accurate and up to date your data is, the better your decisions will be. Leveraging your technology will provide you with accurate real-time data to make more informed decisions in your business.

Processes and systems drive your business, so it’s important to ask yourself if all of yours are clearly documented and up to date? Some processes may be followed simply because they always have been. Although other processes may have evolved over time, your documentation might not necessarily reflect this.

Using technology to streamline your processes and systems increases efficiency in your business, saving time, money, and reducing stress. You’ll also prepare your business for the future, making it more sustainable, scalable, and saleable.

Leveraging your technology can help you to:

  1. Make your data accessible from the cloud, allowing you to view real-time data and make decisions on the go.
    Example: Xero.
  2. Reduce human error and increase productivity by automating repetitive tasks and workflows.
    Example: Asana for workflows.
  3. Track your expenses and load them directly to your accounting software simply by taking a photo.
    Example: ReceiptBank.
  4. Minimise double handling and increase efficiency by integrating your apps.
    Example: Xero Marketplace.
  5. Collaborate with your team regardless of where they are.
    Example: Slack and Microsoft Teams.
  6. Save the time and money needed to travel by using online meetings.
    Example: Zoom and Microsoft Teams.
  7. Induct new team members seamlessly with clearly documented processes.
    Example: Deputy.
  8. Monitor your inventory in real-time, reducing inventory days and freeing up cash.
    Example: Fishbowl and Unleashed.
  9. Store customer preferences to personalise customer experience, increasing customer satisfaction and retention.
    Example: Vend and Kounter.
  10. Make your business become scalable with systems in place to allow the business to grow without the wheels falling off. Talk to your business adviser. 

Using technology to its maximum advantage will help to improve your business. However, implementing these changes can often be overwhelming.

Talk to us about any of the above technology to improve efficiencies in your business.



Building a better business in 10 steps

Building a better business in 10 steps

There’s no magic bullet to building a better business; it’s about taking small steps every day to get a bit better than the day before - it all adds up!

Owning and running a business is not easy. And at times you might question why you’re even doing it, particularly after the impact Covid-19 and the associated lockdowns had on business.

But you’re here because you had a vision. You decided being in business was a better way to achieve that vision than working for someone else. And, you’re right; you just have to work on it.

It's likely that you're an expert at what you do. Maybe you’re a tradie and know plumbing or carpentry like the back of your hand. Or, maybe you’re a restaurant who can dish up delicious meals. This doesn’t mean you’re an expert at running your business though. It’s hard taking time out of working in your business to work on it. But doing this is essential for its success.

There’s no magical overnight solution to building a more successful business. It’s about taking small steps every day to get a bit better than the day before.

So, what should you do to build yourself a more successful business? We’ve broken it down into 10 essential steps

Ten steps to building a better business

  1. Get clear on exactly what it is that you want.
  2. Be open to change and new learning.
  3. Define where you are now (warts and all).
  4. Make a plan.
  5. Get your organisational structure right.
  6. Be a better leader.
  7. Be held accountable by someone independent.
  8. Build strong networks.
  9. Monitor your progress.
  10. Keep your well of happiness full.

These are the 10 most important things you should be working on to ensure you achieve your goals. Small, incremental changes can have a massive effect on your success.

We’re here to help you, every step of the way. Get in touch!

“Success isn’t overnight. It’s when every day you get a little better than the day before. It all adds up.”  Dwayne ‘The Rock’ Johnson


Saving time and money with a bookkeeper

Saving time and money with a bookkeeper

Turning a profit will be high on your list of goals as a business owner. And if you want to generate the best margins, that means keeping an eye on the money that’s going out of the business, as well as what’s coming in.

So, how can your bookkeeper help with this?

The days where your bookkeeper just did the bookkeeping, compiled your accounts and filed your BAS are well and truly over. Modern bookkeeping firms are far more interested in helping you with your financial performance, your business strategy and offering flexible value-add services that put you in better control of your finances.

If you partner with the right bookkeeper, we can actually save you money – in both the short, medium and long-term. And that’s good news for the growth of your business.

Key ways your bookkeeper can save you time and enhance your financial health

The less expenditure you have as a company, the bigger your profit margin. It sounds incredibly simple, doesn’t it?

The smaller your costs, the larger your profit. But if you’re not fully in control of your financial management, it’s very difficult to know WHERE you’re spending money, and WHY you’re not achieving your profit targets.

This is where working with a bookkeeper adds a huge amount of value. Your bookkeeper helps put you back in the driving seat of your finances. And that’s never been more needed than in the current economic climate.

So, what specific things can your bookkeeper do and what will the impact be on the future of your business?

Cashflow management and advice

‘Cash is King’ may be a cliche, but it’s true. Unless you can balance the cash inflows and outflows from your business, you’ll never have the liquid cash to pay your bills, cover your payroll costs or cover your operational expenses. We’ll show you where money is going out, and coming in, so you achieve the ideal positive cashflow position.

Cost control and spend management

To improve your cashflow, you need to reduce your cash outflows. An important way to do this is to focus on cost control and spend management, reducing your expenditure, removing unnecessary costs and negotiating better deals with your suppliers. The more you cut costs back, the better your cashflow will be and the easier it will be to thrive, grow and become more profitable.

Forecasting and financial modelling

When we understand the key financial drivers in your business, we can build you a full financial model. This allows us to change the variables, run different scenarios and forecast the various future paths of your business. Being able to project these numbers forward gives you a clearer view of the path ahead. And that’s invaluable in the challenging economic times that we all face at present.

Better management reporting and information

Your decision-making stands or falls on the information you have available to you. We provide detailed management accounts, breakdowns of key metrics and forecasts of your cashflow, spending, aged debt and revenue – all of which helps you to save money, make sound decisions and keep the revenues flowing into your business.

There are a number of Apps that create efficiencies with cashflow management and forecasting to help you save time and money, and have a life.

Rather than spending your life working in your business and trying to do everything yourself, you'll be saving time and money with a bookkeeper. We’ll help you optimise the most profitable parts of the business and increase your overall return on investment.

Let’s talk about how we can work together to support your ongoing business profitability.

Safeguard your business

Safeguard your business

Small business is all about relationships. But when these go wrong, it is devastating.

Ensure you have the systems in place to routinely look at where your money’s going in order to safeguard your business and your relationships.

Being able to trust your team is gold standard but introducing a few simple processes ensures that is much harder for someone to abuse your trust.

Think about these tips to safeguard your business and keep your trusted relationships strong.

Housekeeping

Good systems make it easy to understand and hard to hide things. If you have a system, make sure it’s documented. They don’t have to be complicated. For instance, when you refund a customer, make sure it’s signed off by a manager or yourself and recorded somewhere central. Checklists can make a system easier for staff to understand and work with too.

Have systems in place to routinely look at where your money’s going or that require you to sign off on key transactions.

Monitoring

Do you have regular reporting? Things to look for are unusual customer refunds or credits, a spike in new suppliers or payments to existing ones. Do your sales look right? Is there a dip in cash sales?

Know what benchmarks other businesses in your industry are hitting. Compare your profit to overhead ratios with theirs and question inconsistencies.

Risk Assessment

Conduct an annual risk assessment of your business to make sure your systems and monitoring are still relevant and in place. 

Talk to us about setting up or reviewing the systems you have in place.

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