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A Home-Based Business Online
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Practical home business ideas, opportunities
and solutions for the work-from-home
entrepreneur
Issue 153 : October 7, 2002
Sent to 13,727 Opt-In Subscribers
Editor: Elena Fawkner
Publisher: Fawkner Publishing
http://www.ahbbo.com
Contact By Email
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IN THIS ISSUE
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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
6. Advertise with AHBBO
7. Subscription Management
8. Caveat Emptor
9. Contact Information
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1. Welcome from Elena
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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 .
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2. Home Business Idea of the Week - Packing/Unpacking
Service
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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.
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This is just one of over 130 ideas from the new "Practical
Home Business Ideas From AHBBO" e-book. Find out more at
http://www.ahbbo.com/ideasbook.html .
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3. Feature Article: Pricing Yourself to Get and Stay In
Business
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© 2002 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.
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** Reprinting of this article is welcome! **
This article may be freely reproduced provided that: (1) you
include the following resource box; and (2) you only mail to
a 100% opt-in list.
Here's the resource box to use if reprinting this article:
------
Elena Fawkner is editor of A Home-Based Business Online ...
practical business ideas, opportunities and solutions for the
work-from-home entrepreneur.
http://www.ahbbo.com
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4. Surveys and Trends
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© 2002 Ryanna's Hope
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ADVERTISERS ... ARE YOU CLUTTERING YOUR WEB PAGE?
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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.
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ARE YOU TARGETING THIS VAST MARKET?
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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.
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5. Success Quote of the Week
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Happiness walks on busy feet.
-- Kitte Turmell
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6. Advertise With AHBBO
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To learn more about advertising in the AHBBO ezine,
visit http://www.ahbbo.com/advertising.html .
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8. Caveat Emptor
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Although all of the information presented in AHBBO is
published in good faith, I accept no responsibility as to the
accuracy or otherwise of the information presented. By making
use of the information contained in AHBBO the reader assumes
all risk that certain information may prove to be incorrect.
**I do not endorse any advertisements unless stated to the
contrary. Your money, your decision, your responsibility.**
All advertisements are accepted in good faith. However,
advertisers are solely responsible for the content and
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warranties, nor accept any responsibility, in relation to any
classified advertisement appearing in this publication. ALWAYS
carry out your own due diligence! Remember, if it sounds too
good to be true, it probably is.
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9. Contact Information
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Elena Fawkner, Editor
A Home-Based Business Online
Contact By Email
http://www.ahbbo.com
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All Rights Reserved