Find your market price?

"I'm offering a first class service at an affordable price." This is what a marketing specialist said to me when I asked her how she pitched her services to her clients. "But are you making enough money?" I asked. "No," she said.

Now, there are plenty of marketing people who seem to be making a really decent living, so either they are working incredible hours - which is hard in a creative job - or they have found a pricing for their product that works for them.

My client needed to find her 'right price'.

Your minimum price

As a small business, generally speaking each job should pay for its materials and its labour, and make a contribution to your overheads, your personal remuneration and your net profit.

Whether you pay yourself out of dividends or through payroll, when looking at job profitability you should always include your own remuneration before you work out the net profit.

So, making no profit after you have paid yourself sets your minimum price, as after all you are in business to make money for yourself, aren't you?

How much can you make?

Allowing 5 weeks for vacations, an 8 hour working day, and 1 day per week for business development, if you charge out your time to each job at £24 ($40) per hour you can expect to pay yourself just £36,096 ($60,160) per year before tax and national insurance.

Not much is it? You have to either work longer hours, or increase your prices.

Increase your prices

Now an interesting way of looking at this is to work out how many jobs you could afford to lose to make the same money if you increased your minimum price to pay yourself more.

Increase your own remuneration by 50%, to £36 ($60) per hour, you can afford to lose 1 job in 3 of those you would have won before and still pay yourself the same.

You then have time to go out and win more jobs at the higher price, and you can then pay yourself £54,144 ($90,240) per year for 32  hours per week of cover over 47 weeks. Much better!

Take the risk

So what have you got to lose? You have to take the risk of losing some jobs to work out the 'right pricing' for you in your chosen market.

Increase your prices to pay yourself more, and give it a go. Add materials, labour and overheads to your own increased remuneration for each job and see where it leads.

If you think a 50% increase is too high, try 25%. If you are still winning more than 80% of the jobs you would have won before, go higher. That's how the maths works!

www.sussexbusinessadvisors.com

What is your market?

You've got a great skill, or idea for a product or service, but will it sell? Do you really know who will buy it, where, and at what price?

Now, some people make a lot of money through having an idea that just takes off, but most of us don't have that luxury, and for us researching and understanding our market is a sure way to reduce the risk of disappointment.

Me too

The fact is, most small businesses are offering 'me too' products or services into an existing market.

This is true whether you are a trades-person, a small manufacturer, a service provider, or in a profession.

There will be plenty of other people around who are offering to do what you do: some of them do very well at it, while others just muddle along.

Better than the average

And surely you want to make some decent money: you want to be the best in your territory, or at least better than the average.

Successful entrepreneurs have the skills to differentiate themselves from the herd, and to know where to look for the jobs with the highest margins. They don't see themselves as 'average'. They, like you, want to build a successful enterprise.

Know your market

Segment your market by putting your potential clients into categories in which the requirements are similar:  identify the segments that yield the highest margins, and especially the ones that offer repeat business.

For example, as a trades-person your segments might be: low-value private dwellings; high-value private dwellings; residential blocks; commercial properties; industrial properties; government buildings; new builds etc. 

You can then see which of these segments will deliver the high margins and provide you with a steady flow of repeat work.

Then get the map out and mark off where these higher value opportunities might be. Define your territory so that you are not wasting too much time on the road.

Finally, look at what the really successful businesses are doing in your market and learn from them; Google them; study trade journals and local magazines - anything that will give you a feel for where you can build success with your special product or service .

High-end business

Now you have researched your market, you understand what and where your high-margin market opportunity is, you can start on your marketing - identify these high-end clients and go after them.

Stick to your territory and don't get side-tracked into accepting a full order book from the low end of the market. You'll not get rich by doing that.

What do you want out of your business?

“Your vision of where or who you want to be is the greatest asset you have.”

This is a quote from a brilliant little book called “It’s not how good you are, it’s how good you want to be” by Paul Arden (Phaidon, 2003).

Sadly Paul is no longer with us, but in the ‘80s and early ‘90s, as Executive Creative Director at Saatchi and Saatchi he was responsible for some of Britain’s most successful advertising campaigns.

I picked up this book recently on a family visit to Australia, and it set me thinking. What Paul is talking about really, is having an ambition, a goal, a vision.

Your personal ambition

Whether you are starting up a business or managing a small business of your own, obviously you are doing that for a reason. It is an ambitious thing to do, running your own business, whatever its size.

But have you set yourself real goals? Is there something concrete you are going after? What is your vision of where or who you want to be?

Your vision and your business

Do you want to be rich and retire at 50 with a yacht and a house in the Mediterranean, or work until you get your state pension, retiring with your own house and sufficient savings and assets to bring in a decent retirement income?

But there is more to ambition than that. For example you could just want to be famous, or become an MP.

In business terms, however, it is your desire to achieve a certain level of wealth through business that determines how big and how profitable your business has to be.

Take a pause and think

Faced with the daily grind, it is easy to lose sight of the long-term. I guess most of us in business need, from time to time, to take a pause and see if we are on track to achieve our goals. If we are not, we can think about what changes we need to make to re-align our business with our personal vision.

Make your time work for you

As a start-up, sole trader, micro business owner or a small business owner, your own, personal time is your greatest resource.

Yet, how often do we hear phrases like ‘I work 60 hours a week and I haven't had a holiday for 3 years', or more seriously 'I don't seem to make the time to go out and find new customers'.

‘Time is money’. Follow these steps to work out how to make your time work for you.

Where do you spend your time?

Take a typical month – 30 days – and write down where you spend your time. Decide on some headings that reflect your business activity and split your time across these headings.

Think in terms of half-days: you need sufficient headings to capture your activity down to that level – 4 hours per month.

Remember to include everything: website; networking; tweeting; facebooking; blogging etc. as well as finding prospects; travelling and seeing clients; quoting; taking orders; purchasing; making stuff; packing and shipping; follow up; invoicing; service; rectification; managing staff; R&D; your books etc.

How does this time relate to your revenues?

Your next step is to write down your main revenue streams and their contribution to your annual turnover, or if you are growing your business, where you want the growth to come from and the annual sales you want from that growth.

Then you allocate your time to each of these revenue categories.

 

For example, does the time you spend on your website or on social media really contribute its fair share to your revenues? Does it contribute to, and is it essential for your growth?

Are you programming your CNC machine every morning, and is this stopping you going out to see new prospects?

Be honest with yourself and you will be amazed at the result.

Make your time work for you

Now it is decision time. You can now see what you should cut back on, or give up, or delegate to someone else, or give to a supplier or subcontractor, to make time so that you can get your life back and grow your business.

Even if you can’t face the analysis, at least start thinking about what you do in terms of what it contributes to your sales.

Have fun, good luck and get help if you think it would help you.