Which of your products and services make the most money? Is it the one you love to sell? Or is it the one that is really low priced but you sell loads of?
In a business where you offer several different streams of income, you need to know which ones make you money. The ones that take a lot of effort might be making you no money and you need to think about how to generate more money from those that are bestsellers.
To do this, you need to know your cost per product or service.
In your business, you maybe offer a course, 1:1 coaching, workshops and an ebook as an example. There will be some direct costs (you only incur if you do the work), such as the hire of a venue, or paying a speaker, plus affiliates and associates.
Then there are the indirect costs (overheads). These include, your website charges, social media, VA and so on plus paying yourself. This is everything else, basically, in your business. You need to work out how much this is per hour by taking the total per month and dividing by the number of hours you work. Let’s say this is £50 per hour for you.
1:1 work can seem profitable, but there are costs as well, and this is often your salary. So for example, you are a coach charging £1,000 a day. You run a workshop, and you charge the client £3,000 for it (1 day presenting it and 2 days preparing it). The venue costs £500 to hire, and there are travel costs and so on. The cost to you is the £500 plus £50 per hour of costs. So the total cost is £1,550. Does the profit of £1,450 for the 3 days pay you enough.
Ebooks and courses are also low cost but you do need to factor in the time to create it, plus the marketing and design aspects. There is also the cost of not doing other work, as the creation time is time you can’t be working with clients (opportunity cost) but hopefully something that will pay off in the longer term. Just be clear how much time you spend on say a £9.99 ebook vs a £200 course as you won’t get that money back.
If you are charging by the hour, for example a VA or bookkeeper, remember that you don’t take home the £25 per hour, but that you have costs in your business too. So if your costs are £5 per hour, you are only taking home £20.
In a product business, it can be easier to know the cost per product as you are usually either buying in or making a product. So for example, you make vegan soaps, so you know the cost of your ingredients, the cost of producing the product, the packaging costs and how much it costs to send it to the customer. You know how many products you made from that batch of ingredients so that gives you a direct cost per soap (the cost of actually making the soap).
You then need to remember to factor in indirect costs (overheads in your business). You maybe have an office or an assistant, plus there are marketing costs, accounting costs and so on. All your overheads should also be taken into account when pricing. You should also factor in your time as part of this. Add all of these costs up and divide by the number of products (you could do this for a year or just a batch at a time, but make sure the timeframe is the same for both). This is then split over all your products, not one line, so you then have a standard overhead charge for each product.
So you could have a direct cost of £8 for the soap (these numbers are totally made up – I have no idea of the actual costs!) which includes sending the product out. Then you might have £3 indirect overhead costs, which covers your time and any other costs you have. This is the same for every product you produce in your business. So a moisturiser might have a direct cost of £10 but the indirect cost would still be £3 per product.
You can then use this information to price your product to ensure you make a profit. So your soap costs £11 and you charge £13, you are making money, but if market forces dictate you can’t sell it for £13, you need to rethink your business model.
The outcome of this is to show which areas of your business are making you money, and where you are forgetting about costs. We’ve covered pricing before, but you need to ensure you are pricing to make enough for you to take home in your business and this will help guide you as to which products or services are most profitable and bring in the most money.
If you want to know more, check out my Becoming a Numbers Ninja course