How much you should charge for your services is a very common question. Spoiler alert, no one answer but we are here to help you figure it out for your business. Keeping tracking of your margin vs markup difference is a valuable way to inform how you are pricing your services. The difference between cost and price is your margin, and your percentage (margin) will be calculated from your price of sales.
What is the right service price?
Now how do we go about pricing? Firstly, you need to have a firm grip, hold and understanding of your numbers. It would be smart business sense to consider why it pays to know what is going out – your cost of production, your cost of running your business.
Let's think about what pricing represents. Pricing represents obviously you recovering costs from your clients, you achieving your marketing objectives, you achieving your business objectives and it sends a message out about what you are and the type of business and the type of services you offer.
Office equipment, furniture, stationery supplies, administrative assistance, insurance for your workplace as well as your general business, travel expenses (depending) and let us not forget the financial wizardry like your accountants – all of these come at a cost when powering all the little bricks that build what functions as your business.
We can appreciate that not everybody is a seasoned business owner. Some people are obviously just starting out and don’t really have any past experience to basis their forecast cost around. You can estimate these expenses or you can find similar business in your field and model them around that! Either way, treat your business seriously.
Types of Pricing
Moreover, one way to figure out How much you should charge for your services is based on your costs. A popular choice of pricing/billing your customers is also the ‘Cost Plus Pricing’ strategy! This is where you calculate how much is cost you to produce your work and then you add a desired margin in order to reach profit.
Next, we have ‘Competitive Pricing’ – where you are tasked with looking up all of your competitors (as many as possible) and taking note of their costing for whatever services that match your own.
Now we totally understand if things get a little confusing for you (but hey that’s why we’re here!). Although profit margin and markup ARE separate accounting terms, they do happen to use the same inputs and furthermore analyse the same transaction but ultimately show different information. Take it slowly but surely to avoid confusing the two concepts; you could end up skewing your pricing! Ensure that you investigate your marketplace, if you’re forecasting, you’re going to need to try workout if your projected figures are realistic!
If you're offering pricing based on value, you give to the client, the transformation that you make, the pain that you solve, the problems that you solve for them, then your price is gonna have a higher value to that. However you need a benchmark of those number. If you don't, you're basically doing that and saying, “Think of a number between one and 10 and I'll double it.”
If you want your business to carry on, sustain, survive then you need to know how much you should charge for your services. If you don't do this then you may be under pricing, meaning you and your business can suffer losses.
Get in touch with us to see how we can help you with your pricing and all your accounting and tax needs. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.