This is a guest post from Ellen Rohr answering one of the most commonly asked questions I get, and in honour of National Entrepreneurship Week in the US!
You want to make more sales and more money. Good for you. And it’s good business.
Here’s the problem. More sales at a losing selling price is like cliff diving into unexplored waters. You might not hit bottom, but you might. It’s going to hurt if you don’t know what’s below.
If you don’t know how much you need to charge, you can be tempted to lower your price. If you aren’t sure where the bottom is, you may risk it. If you do know, then you can confidently walk away from a sale if it’s going to cost you to make that sale.
Once upon a time I learned a great secret about making money in this business. Here it is…
You’ve got to charge more than it costs.
Do you run accurate financial reports every week? Great. Then you know your costs and you know if you are making money.
Or, are you cliff diving…at night…hoping there is enough in the checking account to cover this week’s bills?
Maybe you know you should keep better track of the money, but you keep putting it off because you are…
- Too busy?
- Financially illiterate?
…or all of the above?
Crunch Those Numbers
Get over it. It’s time to clean up the “slinky-knot” mess you may have made of your accounting program. As the owner, you’ve got to know because it’s your money.
Get the financial reports current and accurate. Then, crunch the numbers. Put a simple Budget together. Add up your costs of doing business and then come up with a top line Sales goal that covers your costs and leaves you with a profit.
How much profit is up to you. (Isn’t it nice to be the boss?) Use a pencil and a columnar pad, or a simple Budgeting program. Here’s a cool, easy-to-use, customizable spreadsheet you can have for free by opting in to get our free newsletter.
Know Your Price
Now, if you are just guessing at your costs, you won’t have a clue as to how much you need to charge. You could be swayed by your knuckleheaded competitors who haven’t crunched the numbers either. You might be tempted to try and match their price. (Really…how do you know that they are making any money?)
I was sick and tired of increasing our debt every month.
Once upon a time, I quite my real job (restaurant manager – good salary, benefits and someone to cover for me when I wasn’t around) and went to work for my husband, Hot Rod, in his contracting company.
It was the dumbest decision I have ever made. It was hell. I left my steady paycheck behind and assumed financial responsibility for a sinking-fast company. I was college educated. I graduated Summa Cum Laude with a BS in Business Administration. The BS really stood for my approach to business. I didn’t know what I was doing. And, I didn’t know my asset from my elbow.
I did NOT want to crunch numbers, look at spreadsheets or confront our financial situation. I wanted so badly for a magical bean counter fairy to wave a wand and make millions of dollars appear in our checking account.
Accounting Is Sexy
“Shouldn’t our accountant handle this?” I fumed. “I don’t have time to figure this out,” I whined. I just didn’t want to deal with the money. That approach might have worked if we had lots of money. However, we were running out and digging a deep hole of dept.
Sigh. When the pain of the current condition becomes greater than the fear of change…you’ll change. When I finally got fed up with financial worries, I took a deep breath and said, “OK. I’ll do this.” No one else was going to figure this out for me. It was my responsibility. Hot Rod was doing his part…he worked from dawn ‘til dusk turning wrenches. It would have to be me. I was finally ready to go over, under, around or through any obstacle between me and financial understanding. I was ready…finally.
Once I committed, it took me about a year to develop a firm understanding of the accounting. Thank goodness for my helpful accountant, Brenda. I struggled along and she checked my homework. I tackled my accounting software and labored over debits and credits. I did whole months of data entry all wrong and had to undo and redo them.
Once I committed, there were serendipitous moments of …fun. Yes, fun! Accounting is like a crossword puzzle. Numbers add up and across. If you are “off” somewhere, it is probably you, not the computer or the software. And, it is FUN to find and fix the glitch in your data entry. I raised my nerd flag and to this day I wave it proudly.
Raising Your Prices
The BEST part: Finally understanding where we stood financially. I was afraid of knowing. That’s why I fought it for so long. Once we had the data, so many of the emotional issues fell away. We had the score and could make decisions based on the score.
No more arguing about working hard enough or being good enough. We could see the problem. We weren’t charging enough. I added up our costs of doing business then divided by the number of billable hours we could sell. That’s how I learned that we were charging less
We had to raise our prices. If that meant we would go out of business, so be it. What a relief.
Turns out people pay much higher prices than you think they would. How about that? We made decisions based on the data. I knew where the money went and how to make more of it. Very cool.
If you are priced properly, you are probably going to be the high priced provider of your goods and services. You’ll be in good company. Notice where most market leaders are positioned when it comes to their pricing. Starbucks, Coppertone, Merry Maids, Band-aids, Charmin…these winning businesses leverage the value of their products and services and skip selling on price.
If you are selling at the right price, here’s something you’ll discover:
Until you learn how to communicate and sell successfully, people are going to say, “No.”
That’s why there are no commission sales people at Walmart. People need and want that crap at that price. Ever get a price objection? “Oh, I would love what you are selling if it were only less expensive.” People talk about price because they don’t see the value at that price. The uneducated way to a sale? Lower the price.
But not you. Be willing to charge more than it costs. Become a sales professional. Take some classes, read books and listen to webinars about good sales skills. Practice, and hone your craft. Business IS Sales.
Listen to your customers and find out what’s needed and wanted. Help people solve problems. Sell value and love and friendship. Get good at selling at higher prices. More sales at the right price = lots of money.
This highly valuable guest post is by Biz Planning pro Ellen Rohr. She helps you find the freedom in a profitable, successful business of your own. Meet Ellen at www.barebonesbiz.com.