Turnover: Setting Your Prices for Profit Not Just Survival
Don’t Turn Your Back on Turnover
How much are your products and services really worth?
If you’ve been following my recent blog posts, you should have a good idea about how to begin setting a pricing strategy for your micro business or side hustle.
You aren’t alone if you think your business is too small for a pricing strategy. Many of the micro and side hustle business owners I work with tell me that they don’t need one. They’ll say their business consists of just one or two people, or they haven’t got a long list of different products and services to keep up with.
But are these really good enough reasons not to make sure you’re charging the right prices for what you sell?
The idea of price-setting can feel daunting, particularly when you’re only just starting out in business. There can be a strong temptation to charge far less than you should in the beginning, because you’re not sure where you sit in the marketplace, or how much potential customers are willing to pay.
This is the point where a great many new business owners will tell themselves that they need to build up some experience before they can charge more.
Later, they worry about scaring potential customers away with higher rates, or they say their industry is too competitive to risk raising their prices.
I’ve heard a lot of stories like these, and my response is always the same.
If you want your business to make money, you need to sell your products or services at the right price
After all, getting a new venture off the ground – and then maintaining it – takes a lot of hard work. You may be working much longer hours, and putting far more of yourself into your business than you ever did when you were employed.
Don’t you deserve a profitable business in return?
So start by rolling up your sleeves, and doing some research. My previous blog posts will tell you more about how to begin, and how you can set your own prices accordingly.
How Much Do You Need to Turnover?
Budget-setting is just as important as price-setting. If you don’t know how much you need to make in order to live as well as run your business, how will you know when your business is profitable?
Set aside some time to follow these three steps:
1. How Much Money Do You Need to Live?
The first step is to add up all your annual life essential costs, such as food, rent or mortgage, travel, childcare costs etc.etc. This is your ‘survival budget’. It’s your base-line life costs; the amount of money you need live on.
2. How Much Does Your Business Cost?
A business costs money. It doesn’t have to costs loads of money – but you can’t do it for free. So, you need to be aware of what these costs are.
You can calculate the cost of your business by adding up what you pay annually for things such as website hosting, insurance, networking, professional memberships, software packages, marketing materials, subscriptions, travel, stock….
The list goes on, but you need to ensure you include everything, no matter how minimal.
This is your business budget. It’s your base-line business costs; the amount of money your business needs to operate.
3. So, How Much Do You Need to Turnover?
Now it’s a bit of simple maths.
Add together your Survival Budget and your Business Budget. This will give you your base-line, break-even, annual turnover figure.
Once you have that number, divide it by 12. This will give you your monthly target turnover figure.
For example, your Survival Budget is £20,000 a year and your Business Budget is £4,000 a year. Therefore your annual turnover target is £24,000 and your monthly turnover target is £2,000.
It’s amazing what happens to your pricing mindset when you look at your business in pure number terms.
When you realise you are not charging the right prices for your products or services and you know the direct result will be an inability to pay for essentials such as food, heat and shelter.
How Much Do You Want to Turnover?
I once worked with a client who accepted a contract with a large firm. She lowered her rates to win that contract, and was really pleased when she got it.
Unfortunately, she hadn’t followed the three steps outlined above before agreeing to the ‘negotiated’ lower rate.
When we sat down and worked out her survival budget and business costs, we discovered that she was charging out her services at -£4 per hour; in essence she would be paying that firm to work for them!
So, let’s think about how essential it is to understand the difference between knowing what you HAVE TO turnover and what you WANT TO turnover.
Running your business shouldn’t be about scraping by; learning how to get by on a shoestring!
You have to be honest with yourself and admit how much you want to earn from all the hard work you’re doing!
Running a micro business or side hustle naturally means that you will be very close to what you sell. In contrast to doing business with large, faceless companies, your customers are more than likely buying YOU, not just your service or product!
Being ‘exposed’ like this can be very scary.
It often throws up a whole heap of personal issues around confidence and self worth.
But what this proximity really means is: your lucky customers will be getting a totally unique combination of your skills, your experience, and your personal values.
As a Business Mentor, I can assure you, pricing for profit is one of the key areas of work with my clients. Getting them to know – but more importantly – to own how much they are worth, so they feel comfortable (or at least hide the discomfort) of asking for the price they want (and deserve).
In business terms – in turnover terms – WANT is not a bad thing
So don’t sell yourself short. Do a Skills Analysis, look back over your achievements, and think about everything you have to offer as a person as well as a business owner.
Then think about what you need and what you want and start setting your prices from there.
The moment you make a mistake in pricing, you’re eating into your reputation