Many Caribbean entrepreneurs pick a number out of their head, add to it a significant amount of guilt and “What will people say” to set their prices. If you genuinely want to make money and make a profit, then consider reverse engineering your prices.
Use this concept for whether you are offering services or tangible products. Some elements will be specifically for physical materials.
Your Annual Goal
Do not start with the final sale price. Instead start with the end in mind.
How much do you want to make in the current calendar year?
How much profit do you want to be able to withdraw or reinvest?
Let’s say you have a goal to earn $100,000 in revenue and plan to set aside $10,000 as profit.
Out of the remaining $90,000 must also come your operational costs. This includes your salary, rent and utilities, software subscriptions, marketing costs, raw materials, taxes, and social security, etc.
Holidays and Sick Days
There are 52 weeks in a year. Do you plan to work all 52 weeks?
Consider that with vacation, sick days, and other emergencies we will estimate about three weeks of no work.
That leaves 49 weeks to earn your $100,000.
Working On vs. In the Business
Now if you were to work five days a week then that is 49×5 = 245 days of work.
In every week, one day will be spent working ON the business. This could be paying bills, updating your website, having meetings, and doing promotional work. If you are creating a physical or digital product, then consider how much time it takes you to make them. This could add an additional day and a half to your tally.
In the case of only one day to work ON the business, that now leaves 245-49 days = 196 days
Your Daily Rate
$100,000 divided by 196 days = $510.20 per day needs to be earned.
Now you know that on any given day, your minimum revenue should be $510.20. You must decide how you will make it.
For consultants and other service industries, it may be easy to earn this per day depending on your hourly rate and if you are fully booked for the four days per week and 49 weeks per year that you work.
When you are creating products, you must consider the individual cost of each item. If you sold cakes and the average cost was $50 then you would need to sell 10+ cakes per day to make that daily rate. This would need to be repeated four days a week and 49 weeks a year to achieve your annual revenue target.
Doing physical work of baking cakes or lots of mental work as a consultant is taxing on the mind and body. When you charge more, you won’t need to bake as many cakes daily to reach your revenue goal.
One of the issues often is that we are afraid to charge more for our work, fearing what others will think. Your client’s happiness should not come at the expense of your mental, physical, or financial health.
If you used the method above and realized that your prices will not get you to your annual goal, then it is time to raise them.
Need help working through the barrier of raising your prices? Check out Fix Your Money Mindset. This session will provide practical solutions for overcoming your money insecurities.
Register to access at https://learn.trulycaribbean.net/courses/fix-your-money-mindset.
Nerissa Golden is the Founder and Editor of Discover Montserrat and the CEO of Goldenmedia, a media and business strategy firm. An author and speaker, she enjoys teaching and inspiring others to create businesses that thrive.