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AHBBO Home Based Business Information Return to AHBBO Archives
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_______________________________________________________________ A Home-Based Business Online _______________________________________________________________ Issue 153 : October 7, 2012 Sent to 13,727 Opt-In Subscribers Editor: Elena Fawkner Publisher: AHBBO Publishing http://www.ahbbo.com Contact By Email _______________________________________________________________ _______________________________________________________________ IN THIS ISSUE _______________________________________________________________ 1. Welcome and Update from Elena 2. Home Business Idea of the Week 3. Feature Article - Pricing Yourself To Get and Stay In Business 4. Surveys and Trends 5. Success Quote of the Week 7. Subscription Management 9. Contact Information _______________________________________________________________ 1. Welcome from Elena _______________________________________________________________ Hello again and a warm welcome to all the new subscribers who have joined us since the last issue. How much is your time worth? Do you even know? And if you do, do you factor it into the pricing of your goods or services or do you figure you get the profit so why would you include a value for your time? The price points you set for your goods and/or services can make or break your business. It's not simply a matter of pulling a figure out of thin air. You need to understand your costs - both direct and indirect (which includes your time) before you can set a price that includes a fair profit. "Pricing Yourself to Get and Stay In Business" shows you how. It's at segment 3. As always, thanks for reading and I hope you enjoy this week's issue. Remember, AHBBO is for YOU! If you have comments or suggestions for topics you would like to see addressed, or would just like to share your experiences with other subscribers, I want to hear from you. Please send comments, questions and stories to Contact By Email . _______________________________________________________________ 2. Home Business Idea of the Week - Packing/Unpacking Service _______________________________________________________________ Are you an organizer by nature? One of those "everything has its place and everything in its place" types? If so, have you thought about offering a packing/unpacking service for residential moves? This is a service in high demand by busy professionals who can't afford to take time off work to move. Here's how the business would work. Plan to offer a 2 day full service. On day 1 you pack up, on day 2 you coordinate the move and unpack. The idea is that, on moving day, your client comes home from work at the end of the day to find everything unpacked, put away, plugged in and the house generally ready to live in (including made beds). Of course, your client may not require a full service. They may only want you to unpack and put away and attend to the packing and coordination of the move themselves. So structure your pricing based on the level of service required. At the outset, you should schedule an in-home obligation- free consultation with your potential client and discuss the services you offer. Once you have ascertained the level of service required by the client clearly explain your fee structure. As a rough guide, plan to charge an unpacking fee of $10-$15 per box. For a 1-2 bedroom home, anticipate 30-50 boxes, for 3-4 bedrooms 50-100 boxes. If you are also going to be packing the boxes, strike a dollar rate per box. If you are also going to be coordinating the move (greeting the removalists, ensuring furniture and boxes are delivered to the correct rooms), your time for this service should also be worked into your package price. Alternatively, you may prefer to charge by the hour or strike a price for the whole job upfront. ----- This is just one of over 130 ideas from the new "Practical Home Business Ideas From AHBBO" e-book. Find out more at Unique Home Business Ideas . _______________________________________________________________ 3. Feature Article: Pricing Yourself to Get and Stay In Business _______________________________________________________________ © 2017 Elena Fawkner It goes without saying that the bottom line of any successful business is profit. don't make a profit and you won't be in business for very long. Making a profit is pretty simple really. You just have to make more than you spend. The trick is to know how much you have to make to exceed what you spend. And you spend more than money when running a business. You spend something infinitely more valuable. Time. And, as we all know, time is money. To maximize profits, accurate pricing is absolutely critical. Your prices must be high enough to cover costs and enable you to earn a reasonable return but low enough to remain attractive to prospective clients. New entrepreneurs often have difficulty accurately pricing the value of their time and expertise. Some take the approach that they can work cheaply because they're fast and they're prepared to take any work, now matter how low-paying, to fill in the time between more lucrative assignments. For this group, the mindset appears to be that any work is better than no work. Although this may seem reasonable when you're first starting out and you just want to make your mark as early as possible, the downside is that this short- sighted approach can create in customers a "cheap" mindset that is difficult to shift once the business becomes established. Another group of entrepreneurs, though, takes the approach from the outset that they are worth top dollar and demand fair pricing for the value they provide and won't accept anything less. This group appears to be more successful than the former in the longer run. Sure, they may find it slow to start with. After all, they are new in town, they can't rely on repeat business and they can't ride the wave of their own impressive reputations. But by setting the bar high to start with, when their businesses DO become established, they've set the tone and their businesses usually have a firmer foundation for it. This article looks at the fundamentals of pricing for the new home-based business entrepreneur. BASIC PRINCIPLES OF PRICING Here are some basic principles to keep in mind when considering your pricing strategies: => Prices must at least cover costs. If you don't at least cover costs, and this includes an amount for your time, you will incur a loss. If your business is incurring a loss it's a hobby. => The best way to lower price is to lower costs As price equals costs plus profit margin, it's obviously better to reduce the cost element than the profit element if, for any reason, you find that you must reduce your prices. => Prices must reflect the environment in which they operate Any price, whether yours or your competitors', necessarily reflects the dynamics of cost, demand, market changes, competition, product utility, product longevity, maintenance and end use. => Prices must be within the range of what customers are prepared to pay It's all very well having the best bread slicer in the western world but if your price is more than customers are prepared to pay for it, so what? On the other hand, there is absolutely no reason to charge less than customers are prepared to pay either. => Prices should be set at levels that will shift products and services and not to beat competitors alone It's easy when you start delving into all of the sophisticated analysis and research around about optimum pricing levels to forget that, at the end of the day, you set your prices as high as you can while still shifting your products and services. So don't think that keeping pace with competitors is enough. It isn't. You may have competitive advantages that mean you can charge more than your competitor. => The price you set should represent a fair return for your time, talent, risk and investment Don't be coy about demanding a reward for what you bring to the table. Your expertise and talent has objective worth. Don't just give it away. Charge for it. PRICE = COST + PROFIT MARGIN The basic price you will strike is simply your costs plus a profit margin. It follows that before you can set your prices you must know exactly what your costs are. Costs fall into three main areas: => Direct Costs Direct costs are those things directly related to the creation of your product such as raw materials, parts and supplies. => Overheads Overheads are business costs not directly related to production and include things such as taxes, rent, office supplies and equipment, business related travel, insurance, permits, repair of equipment, utilities (electricity and telephone) and professional advice (accountant, lawyer). => Labor Labor costs include all wages paid to employees *including yourself*. It's amazing how many home-business owners forget to include their time as a cost of business! Calculate your labor costs by multiplying the number of hours worked by an hourly wage. You should also include fringe benefits (typically 15% plus). Once you have ascertained your total costs, add a profit margin. A 15-20% profit margin is standard for most home-based businesses. Although you have included your own wages in your labor costs, if you don't add a profit margin there will be no money for growth or expansion of the business. RELATIONSHIP BETWEEN PRICES AND PROFITS The easiest way to increase your profit is to raise your prices. But you can't just raise prices indiscriminately. Look for ways to manipulate niche pricing instead. This means looking for specific areas of your business where you have some latitude to increase prices. The way to do this is to identify the areas where the perceived value of what you are offering is higher than the price you are currently charging. Start by carrying out a competitive analysis of your business. Find out how your product compares with your competitors' on the basis not only of price but costs as well. If you are going to source this information by approaching competitors directly, a word of caution ... don't. The Sherman Act in the US (and similar legislation in many other jurisdictions) prohibits businesses of any size from entering "contracts, combinations or conspiracies" in restraint of trade. In other words, it's illegal to make deals with competitors about what price you'll charge or what services you'll offer. Merely discussing prices with competitors can be construed as an attempt to conspire on prices. This is one area where you just don't want to give even the *whiff* of an impression of doing anything of the sort. So, be circumspect in your research. Never discuss prices with competitors and avoid frequent communications with them at all if possible. Instead, to keep tabs on what your competition is up to, read their ads, talk to their suppliers, engage mystery shoppers or send an employee to make observations. Once you have completed your competitive intelligence, analyze your competitive advantages and disadvantages. If, as a result of your analysis, you learn than you have an advantage over your competition because your business is website design and you know how to do cgi-scripting but your competition has to outsource this function and this means a delay of one to two weeks, then this advantage is something your customers will likely pay more for. Adjust your prices accordingly. WHEN YOU'RE THE PRODUCT Some businesses don't offer tangible products at all. Sometimes, YOU are the product. So, how do you price yourself if you're, say, an ecommerce consultant and your business is assisting brick and mortar businesses make the transition to ecommerce? One perfectly reasonable approach is to start with a calculation of your actual expenses and your salary needs and then divide the total by a reasonable estimate of billable hours. An article entitled "Setting Fees" by David Dukoff gives a good overview of how to go about doing this. Let's say your expenses and salary needs mean that your business needs to be generating $100,000 a year. Let's also say you prefer to charge clients by the hour rather than by quoting on projects. How much do you need to charge per billable hour to generate $100,000 per year? Dukoff uses the following approach. To start with, how many billable hours do you have? Let's start with 2,080 work hours in a year. Deduct 100 hours for vacation time (2 weeks), a further 80 hours for popular holidays, 40 hours personal time and sick leave and 20-40% of time for marketing and administration. This leaves you with around 1,000 billable hours in a year. You therefore need to charge $100 per billable hour to achieve your goal of $100,000 income. OTHER PRICING STRATEGIES Other pricing strategies to include in your structure include discounts to encourage prompt payment or quantity purchases, seasonality issues (for example, end of season “sales"), offering senior citizen and student discounts and other promotional incentives. As you can see, setting the "right" price for your products and services is absolutely crucial to the profitability (read survival) of your business in the longer term. But with careful analysis and a methodical approach, you should be able to arrive at reasonable pricepoints without too much difficulty. Then it's just a matter of monitoring demand in response to price changes to settle on the optimum pricing for your business. But don't rest there. Your prices operate within a constantly changing environment and you need to be ever-vigilant to ensure that your prices remain at their competitive maxima. One final piece of advice: if in doubt, price high rather than low. It is much easier to discount prices than it is to increase them. ------ include the following resource box; and (2) you only mail to a ------ practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com _______________________________________________________________ 4. Surveys and Trends _______________________________________________________________ © 2017 Ryanna's Hope ------------------------------------------------------------ ADVERTISERS ... ARE YOU CLUTTERING YOUR WEB PAGE? ------------------------------------------------------------ Over a third of Internet users in the US will leave a website if they think it is too cluttered with advertisements, reports eMarketer. According to a Burst Media study, 36 percent of American Internet users say that will leave a website if the website has too many ads on it. Nearly 60 percent of American Internet users say that if a webpage is cluttered with ads they would have a less-favorable opinion about the products or services advertised on the site. Around 68 percent of Internet users believe that they have a low tolerance for more than two ad units on a single page, compared to 33 percent who say they can tolerate one ad on a page and 30 percent who can tolerate two ads on a single page. ------------------------------------------------------------ ARE YOU TARGETING THIS VAST MARKET? ------------------------------------------------------------ Teenagers and children constitute one of the fastest growing Internet populations, with 77 million under 18's expected online globally by 2005. They also constitute the most important user population, with their adoption of the Net essential to ensuring its future. Everyone who plans to do business online would be well advised to get to know Generation Y. As can be expected, entertainment products such as games, music, tickets and videos are the most popular products with young consumers, tailor-made as they are for junior pockets. And while this is largely in keeping with the purchasing patterns of older Net consumers, relatively speaking young consumers, with much less disposable income, take greater risks and invest much more heavily in their individual online purchases. _______________________________________________________________ 5. Success Quote of the Week _______________________________________________________________ Happiness walks on busy feet. -- Kitte Turmell _______ _______________________________________________________________ 7. Subscription Management _______________________________________________________________ To SUBSCRIBE to this Newsletter:
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