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Pricing for Profitability

by editor 25. April 2016 10:06

Pricing for Profitability

By: David Buschsbaum, Owner, Sales Manager and Chief Engineer: Beacon Custom Woodwork, Inc.

Labor, material, overhead and profit; the four basic elements to pricing. Or are they? The business world thinks in terms of fixed and variable expenses, depreciation of assets, gross margin, and breakeven points.  If you are running a business it’s critical to know how much it’s costing you to stay in business every day of the year and how much of your product or service you need to sell to cover those costs.

There’s only one way to stay in business - charge enough to cover your true costs.  By understanding your real costs of opening and operating a business you’ll have a better handle on how much you need to charge, and how much you need to sell every week or every month just to keep your doors open. 

It’s important to understand the difference between overhead, or the cost of operating your business, and the ‘cost of goods sold’, or what you spend in materials, labor and expenses to actually produce your work, and the relationship those numbers have to your total amount of sales.

With a solid framework of basic financial knowledge and a simple Excel spreadsheet you can keep track of your gross margin and determine your breakeven point – the point at which you cover your overhead and begin to create profit.  What’s yours?  We can show you how to find out.

We’ll look for hidden fixed and variable expenses, discuss how and why to consider depreciation of assets, how to calculate owner/operator value, and how to determine your “true” hourly rate based on efficiencies – and it may surprise you.     

Think like a cabinetmaker and you will spend your days making cabinets.  If you want to grow your business, create wealth for your family and your employees and really contribute to your community, you have to start thinking like a business owner.  Find out what you need to know to be able to price your work at a profit.

To learn more on this subject register for the Pricing for Profitability session at the IWF 2016 Education Conference.

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