Success Champions
Creating Estimates Based On Your Company Cost
know your numbers! By Greg Norton
K “Know your numbers” is now what I use to make every decision to successfully manage the growth of my business.”
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now your numbers”. How many times have you heard that phrase? For me, I have heard it hundreds of times, but honestly, it never really sunk in until I started my video & creative production company. “Know your numbers” is now what I use to make every decision to successfully manage the growth of my business. In this article, I am going to share with you the process I use to make sure I am growing, but more importantly, staying profitable.
How Much Does It Cost To Run My Business? The first step my process was to know how much it costs to run my business. It seems obvious, but if your costs are greater than your revenue, well, we all know what that means…good try though. I simply added up all of my expenses for the year and divided that out based on a 40 hour work week (yes, of course we all work more than that). In other words, let’s say that all my expenses for the year totaled $80,000. That means that it costs me $38.46 per hour to run the company. Be sure to include all of your expenses including rent, salaries, software, equipment, loans, office supplies, etc. It is important to understand that there will be fluctuations to this formula based on unforeseen circumstances. Just adjust accordingly. If you already do budgets each year, this step is simple because you have already done the work. If you don’t do budgets each year, well, this is your expense line so you are are half-way there.
www.DonnieBoivin.com
Now that I know how much it costs to run my company, I needed to make sure that the sale price of my services was profitable. In the above hypothetical example, if it costs me $38.46 to run my business, and I am selling my services at $25 per hour, I am losing money. A lot of money. I need to make sure that I am on the other side of that formula. Of course, creating your sale price is the result of many factors. In my company, my pricing is based on industry standard, local market, competitor pricing and profitability. In addition, I have multiple services that vary in sale price. You need to create your sales price on your appropriate factors and run that against your company cost. Once my sale prices are in line, I created a spreadsheet to assist me in creating my estimates. This spreadsheet allows me to be consistent, monitor profitability out of the gate, and make adjustments to sale prices based on factors that could affect my bottom line. A real world example could be that you offered a discount for a client. In your spreadsheet, you could adjust pricing accordingly while making sure that you did not jeopardize you profitability. Another example may be that you have different pricing scenarios based on your local competition, again making sure you
