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Setting Your Price – Five Factors to include to ensure you make a profit


April 16, 2019 / fbcadmin

Kerrie Sheaves
Foundational Business
1300 SML BIZ

How much is your time worth? So many small business owners under value their time and end up earning less than a shift at McDonalds / hour for their efforts – Have you reviewed your pricing lately to ensure that you know that your time is valued correctly?

Your business strategy should start with how you set your price, therefore having a good understanding of the key factors you need to include in your cost model and pricing models is essential. Reviewing these regularly as your business grows and changes is important as the cost of doing business can creep up. If you aren’t keeping up with your costs, you’re potentially making less margin than you think.


Knowing if your new idea or enterprise has commercial value and will make you any money, and when you’ll start to see a profit, are critical factors in your future success.

Here are 5 key factors to work through, to determine your actual cost of business before you set your pricing:

    • Fixed or ongoing basic costs. These are the costs of just opening your doors for business, no matter what type of business you’re in. They include accounting, and or accounting systems, bookkeeping, legal costs and contracts, insurances (Public Liability, Professional Indemnity, Product Liability etc.), registrations, licenses and certifications, business management systems (CRMS, Scheduling & Workflow Management Systems, CAD programs etc), rent, fixtures and fittings, maintenance and utilities, IT and the building of your products (R & D). Don’t forget your company tax and GST.


    • People costs – which may include permanent and or casual or subcontracted staff salaries or allowances, your own wage, and superannuation. Vehicles or equipment and PPE your people will need to perform their work, as well as any training costs.


    • Cost of goods or services (related to your specific business type). If you’re a consultant or tradie, that may be time with the client, and travel time to and from the client. In a product business it would include the widgets you sell and their cost of production. In addition, any parts or materials you need to deliver for the client job, including freight/delivery, stationary, printing work books, hiring venues or storage etc.


    • Sales and Marketing – Many businesses put an arbitrary figure into their budget for marketing, without doing any planning around their marketing, which means you end up spending well over the expected budget and don’t measure the returns properly. Having a Strategic Marketing plan and budget (including cost of acquisition per customer, campaign marketing expenses, website, social, PR, print, etc) and a Sales strategy (which is different to a marketing strategy), is essential to setting a real figure for the cost of acquiring and retaining your customers.


  • Other costs that get forgotten (merchant fees, currency exchange rates, travel costs and costs associated with updates and maintenance of your products, vehicles/equipment, app or website) + the profit margin % above the cost price you need to make.

When setting their price, most businesses consider their core income stream. However, there are potentially other passive and active income streams that can be created, which could help keep the price down, without reducing overall business income. Exploring these as part of your business income model, pricing options and packages should be an action every business takes to maximise their income opportunities.

Unless you’re running a charity, you’re in business to be profitable. To be profitable you need to make sure you know your costs thoroughly and that your income is greater than your costs. This week, make it a priority to set aside some time to double check that your business is on track for profitability.

Call us to find out more today!


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