Ep. 374 – How To Price Your Stuff


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Episode Transcript

What’s up? What’s up? What’s up, everybody? Welcome back to THE a.m guys. Welcome back to five minute rants. I’m your host, Michael Abernathy. And welcome back to the show predicated on the journey of life and business, hope life’s treating you good, I’m doing better than I deserve, honestly. And I’m just really blessed. It’s been a great day. So far busy, but great.

Well, guys, today, I’m actually gonna talk about how to price your stuff, okay. And if you’ve been in business for a while, I don’t know, maybe this will be refreshed, or maybe you’ll learn some new things. But if you’re just starting out, this is something to think about. Okay.

I had this conversation just recently, with somebody else we were talking and he was asking, you know, just my opinion in just some things about, hey, how do I actually know What I need to charge? Well, one, normally, with whatever you’re doing, there’s an industry standard, you can Google it, like, hey, how much is on average does it cost for whatever service I’m offering, or whatever product I’m offering, right? That’s a great start. However, you’ve got to know your numbers. And all this starts with numbers. And actually, it really surprises me how many people I talked to with that run business or do businesses and have a company, that they’re not looking at their numbers, right? They’re not actually looking at the numbers, they’re not looking at the bookkeeping, they’re not actually sitting down and understanding the financial model they’re operating on, if they don’t even have a financial model, much less a budget, much less an actual meeting consistently, where they’re talking about their profit and loss statements are talking about cash flow that come up forecasts and all these other things, we’re not doing any of that. And that’s actually pretty surprising, but it’s normal.

So if you’re actually about to start doing this, or if you have been doing this, let me tell you something, look at your numbers. Don’t avoid this stuff. It is the life flow of the company, to have the money flowing through the company, into it and out of it. And real quick tip, there’s only two ways to make money within a company, right? You either keep more, so that means you spend less you cut expenses, or you generate more, which means you have more come in the door through revenue through sales and things like that. So that’s the first part about knowing What you need to charge. Second, you actually need to know how much it costs you to make the thing or do the thing that you’re selling. And so this is known as cost of goods sold, okay? And you actually have to know how much the ingredients cost.

Like, let’s go back, I’ve used a cupcake analogy, not let’s go back and think about the cupcakes, we got to know how much flour per cupcake we have to use and how much it cost. We need to think about all the waste, like on an average day, What is the waste of flour, we need to know how much sugar we’re adding into it, we need to know how much milk, eggs and the price of those things that are going into the cupcake. And Here’s the other thing, you also got to know your overheads. So how much rent is utilities, any management fees, payroll, team members and all this other stuff that flows on overhead, right? And then you can break that down. And it gives you a break even number for the day. Right? So how many cupcakes I need to actually sell in order to cover the cost of goods sold in my overhead and to enter into profit. And it’s not a hard complicated number to figure out. But at this point, you know, okay, cool. This is how much it takes me to sell in order to be profitable.

Now, Here’s the thing, What should you charge? Well, it depends. It depends on brand value and perceived value. It also depends on the industry you’re in it also depends on What you’re worth, right. And so oftentimes, most people think like, oh, we need to be the cheapest. And that’s not normally the best, right? Because how are you going to compete with Amazon for certain things? Because if you want stuff cheap, go to Amazon. If you are in a service industry, normally, you’re going to get What you pay for. And when you’re running things cheap, how are you actually going to hire good employees and team members, because cheap means you’re only able to pay for cheap. Now there are large models and different things to where you’re doing and making profit in mass because you’re selling in mass, you can look at grocery stores and understand how they work and how they’re operating and do things like that, right. But where the margin smaller, but you’re moving a lot of volume.

But the point of What I’m trying to make is this is you got to know basic numbers. The other thing is if you’re in service, right, if you’re selling a service, and you have a service based offering, you need to time track, you need to understand how much your time is worth, and how much an employee’s time would be worth if they did this job. How much payroll would cost overhead, all these other things work in the numbers and then figure out a good rule of thumb real quick for pricing services is thirds. 1/3 goes into payroll 1/3 goes into cost of goods and overhead and 1/3 stays in profit. So it’s a rule of threes. And that’s kind of a good rule of thumb to be and just giving you guys Some practicals on this stuff.

Anyways, I’m out of time guys, so I will catch you later. Have a great day peace

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