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