How much do I charge?
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Working out how much you’re going to charge for what you are doing is one of those make or break decisions. Charge too much and no one’s going to be interested but charge too little and you may put people off, giving the impression that what you’re selling isn’t worth much. If your prices are too low, you may also find that you don’t make enough to cover the costs that you run up while working, for example materials, petrol, rent on premises and so on.
When setting prices, most people:
- Have a look around and see what others are charging for similar products or services. Don’t be afraid to ring potential competitors to find out about their prices and special offers.
- Work out how much it’s going to cost them to produce a product or provide a service. You can work out how much something costs to make or do by adding up all the materials and overheads that go into it – our section above explains this – and by adding in a charge for the time you spend making or doing it. Then you need to add what’s called a margin, which is the extra cash on top that earns you your living.
- Try to work out how much a product or service will be worth to customers. Think about designer clothes to understand this one. They don’t usually cost any more to make than regular clothes do but because people want the labels and are willing to pay more for them, designer clothes have a higher value.
Setting prices is complicated and while there is plenty of information available on the Internet, it’s probably a good idea to get some expert advice if you’re having difficulty deciding how much to charge.
Cash flow refers to the money that comes in and out of your business. It comes in when you sell something and out when you spend it on anything to do with your business like buying new parts to make something or paying your bills.
Without cash flow, your business can’t keep running. Think about running a business selling wedding cakes. If you get an order to make a cake but can’t afford to buy the ingredients, you won’t be able to make the cake. This means you won’t make any money.
Many, many good businesses fail because of cash flow problems so this is an area you really need to get to grips with, particularly in the early days when business will probably be slow.
The only way to keep track of the amount of money your business is making and spending is to write it down or input it into a computer. This is called bookkeeping and you’ll come unstuck pretty quickly if you don’t take the time to do it. As well as helping you keep on top of cash flow, it’s also the law to keep records of what your business is up to financially so that you can prove you’re paying enough tax and National Insurance. Remember that every time you buy something you should keep the receipt and you should also hang on to all bills to do with your work, for example telephone, electricity and so on.
The Prince’s Trust has a very good guide called Managing your finances, which explains how to book-keep and you can also get information from Business Link.
