Being busy doesn’t always mean being profitable.
You can have a full diary, plenty of customers and a healthy turnover, but still find that there isn’t as much left at the end of the month as you’d expect.
One reason could be your pricing.
When did you last review your prices?
It’s easy to set your prices when you start a business and then leave them alone.
But your costs don’t stay the same.
Materials, wages, fuel, insurance, software, rent, subcontractors and other overheads can all increase over time. If your prices haven’t changed, your profit margin may have gradually reduced without you noticing.
Turnover isn’t the whole story
It’s natural to focus on sales. If your turnover is increasing, it feels like the business is doing well.
But turnover only tells you how much money you’ve brought in.
What matters is what you have left after paying the costs of running the business.
For example, a business with £100,000 in sales may sound successful. But if £90,000 is spent on running the business, there’s only £10,000 left as profit.
That’s why it’s important to look beyond turnover.
Are you covering all your costs?
When reviewing your prices, think about the full cost of providing your product or service.
That could include:
- Materials and stock
- Staff or subcontractor costs
- Premises and utilities
- Insurance
- Software and subscriptions
- Travel and vehicles
- Professional fees
- Marketing
- Your own time
It’s surprisingly easy to overlook some of these when setting a price.
Don’t forget your time
This is particularly important for service-based businesses.
If you charge £50 an hour, that doesn’t necessarily mean you’re earning £50 for every hour you work.
There are hours spent on administration, emails, marketing, quoting, bookkeeping, meetings and other tasks that may not be directly chargeable to a client.
Your pricing needs to take the bigger picture into account.
When should you review your prices?
There’s no single rule that works for every business, but it makes sense to review your pricing when:
- Your costs have increased
- Your profit margins are falling
- You’re taking on more work but not seeing more profit
- You’ve introduced new products or services
- Your business has changed significantly
- You haven’t reviewed your prices for some time
You don’t necessarily need to increase your prices every time your costs go up. But you should understand the effect those changes are having on your profitability.
What do your numbers tell you?
This is where your accounts can be much more useful than simply something that needs to be filed.
Looking at your gross profit, net profit, overheads and cash flow can help you understand whether your current pricing is working for your business.
It can also help you identify where costs are increasing and where you may need to make changes.
Being busy isn’t the same as being profitable.
If you’re working harder, taking on more customers and increasing your turnover but your profit isn’t keeping pace – are you charging enough… it could be time to look at your pricing?
Not sure what your numbers are telling you? We can help you understand them and make informed decisions about your business.
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