Calculating your prices
- then deduct 20% more!
Running a business is not about what you charge.
It’s about the profit you make.
Understanding Your Finances
To be successful in business it’s vitally important you understand your finances and how they work, or don’t work, for your business.
You will struggle to plot a pathway to profit and success if you don’t understand the basic fundamental principles.
Example:
Wedding cake price = £450
Deduct 30% for your taxes & NI = £135
My take home is now = £315
BUT WAIT!
What about the cost of the ingredients, the transport box, extra equipment, decorations - your ‘costs’ list could be pretty huge. Work this out and deduct this from the £315.
WE’RE STILL NOT DONE!
Out of whatever is left, and before you pay yourself, you must allocate some of that money towards your overall business costs.
“OMG - IS THERE ANYTHING LEFT?”
The costs you deduct from your prices, and subsequently the percentages given above, will be different for everyone and very specific to you and your business. There is no ‘one size fits all’ formula. Profit margins vary from business model to business model.
Thankfully there are ways for you to be more in control of your prices and less ‘pick a number, any number’.
"BUT I’M TAXED ON THE NET NOT THE GROSS”
You’re absolutely right. My personal preference however is to over calculate my tax and costs so that I’m covered for any surprises or unexpected costs that arise during the year. Hopefully at the end of the year there should be a wee bit more left over than I accounted for and that’s a sweet bonus!
Moral of this exercise
When you set a price for a product or service this is not what goes into your pocket (unless you are committing tax fraud!)
This is why it is imperative you understand your financials otherwise you are painting a false picture of where your business is really at.
And if you don’t know the reality of how your business is doing, then where are you?
Stay bizzy
Emma-Jane
Disclaimer: The above calculation is a very broad suggestion only for you to always be mindful of your costs when pricing your product or services. It is not an accurate calculation for your accounts. Every business will dictate it’s own profit margin so there can be no ‘one size fits all’ formula. The advice above should not be taken as professional financial or accounting advice. I am not an accountant or financial adviser. Speak to your accountant or finance pro for advice on your particular circumstances.
