I will never forget the first time my husband asked me “how do you know how much to charge for each of our packages?” and I was so flustered.
Frustrated is probably a more accurate description. I was frustrated why he needed to know. I mean, I’m the one who handles the ops so why do you care?? He had just recently quit his full time job to work full time for Blush (our wedding planning company) and he was taking on the backend of the business (payroll, taxes, contracts, payments, etc….).
I wasn’t used to being questioned on things like package pricing or processes and while his question was genuinely his desire to understand, I took it as a jab. Any idea why??
Because I really had no idea. I was in the camp that if we were charging “around” what everyone else was charging and we could pay the bills then that was all I needed to know!
His response…”don’t you want more than just the ability to pay the bills?? I mean, what’s our end game here?”
I would like to say I realized he was right immediately and thanked him for being such an amazing business partner but if you’re married you likely know how the rest of that conversation went.
But it bothered me. What is the end game? What is our goal? How do we know if we can hire another employee? How do we know how much we can spend on advertising or if we can take a raise or bonus. How do we know if we can afford a studio or if we can outsource some of the projects we want to get done?
So I quietly started learning more about profit, pricing and how to break down our services to know EXACTLY how much we made on each package we sold. And you know what?? It has been the most freeing, liberating and successful feeling!!
Knowing your numbers is key to the growth of your company. Burying your head in the sand and just winging it will work for a bit but when it’s time to grow…to break past just creating a job for yourself but truly creating a profitable business, it’s imperative to break down your income/expenses/profit.
We’re going to keep this super simple because it really is pretty simple…
Step 1: Calculate your costs of sales.
These are the costs that are directly related to THAT sale. So for instance, in my planning company the hard costs related to each package are:
Credit Card Fees
For this example we’re going to say our total cost per sale is $85.
Step 2: Calculate your overhead percentage.
These are your fixed costs that you have no matter how many weddings you have. These could include rent, software, equipment, advertising, licenses/insurance, etc…
Once you know your total overhead costs (annually), divide it by your total annual revenue.
For this example, we’ll have $100k in annual revenue and $30k in overhead expenses so our overhead percentage is 30%.
**Tip: Do not include the items in your “cost of sales” in your overhead. You will be double counting them if you do.
Step 3: Decide your rate.
This is what you will charge hourly for your services. This should be determined based on your experience, knowledge and area.
We’re going to use $100/hour for this example.
Step 4: Calculate how many hours it takes you to perform each service.
Actually write this down. This should be everything from the sales call to the invoicing to planning calls, performing the event and any follow up. Get an average number of hours you will spend per service you provide.
For this example, we’ll say package A takes us a total of 25 hours.
Step 5: Set your price!
Time to put all of these numbers to work!
- Multiply the number of hours (25) x your rate ($100/hour) = $2500.
- Add your cost of sale: $85 + $2500 = $2585
- Multiply your costs by your overhead percentage: $2585 x 30% = $775.50
- Finally, add your base price ($2585) + your overhead cost ($775.50) = $3360.50.
That’s it! It sounds like a lot but honestly, it’s very simple once you sit down with your packages. And now you know that if you charge $3360.50 for package A, you’re actually making your hourly rate of $100/hour while covering all of your additional expenses!
If you want to learn more about knowing your numbers to ensure you’re business is profitable and growing, I’ll be doing a workshop on this topic called “It’s a Numbers Game” at the SWEL Summer Summit on August 11th! It’s completely virtual so you can learn all about this topic (and many more!) from the comfort of your own home!
Get your ticket at https://swelsummersummit2020.eventbrite.comhttps://swelsummersummit2020.eventbrite.com and use code SHEWHODARES to get 20% off of your ticket!!