Costs You Could be Missing When Pricing Your Product or Service
Pricing products and services can be tricky—and there are several methods of doing it. They all involve basic principles: knowing your customer, knowing where the market is headed, knowing your competitors, etc.
Another common denominator in whatever pricing method you choose is knowing your costs.
When calculating the costs needed to run your business, most of them are obvious:
- How much you pay for materials/inventory/software
- The cost of freight
- Tools and/or supply purchases
But there are some that might not come to mind right away, and I want to highlight a few:
- Expenses you don’t see until tax time: Do you claim home office expenses, or business use of your personal vehicle? Usually you don’t record these until they are calculated with your taxes. Don’t forget to consider them; they may not seem significant, but they add up!
- The taxes you will pay: This is another one that sneaks up on us once a year. And as a sole proprietor, not only do you have to pay taxes, you also have to pay CPP (and EI if you opt in). Since we all have different tax situations, the best way to estimate how much you will pay is to use a tax calculator. This one from SimpleTax is great: https://simpletax.ca/calculator (note that the “self-employment income” line means your NET income, or income after expenses)
- Merchant (credit card) service fees: As we become more and more cash-less (add in a pandemic that encourages other payment methods), merchant fees are becoming a very common thing. Even if you don’t have merchant fees right now, it could be something you need to do soon. You should consider adding these costs into your future expense projections.
- The cost of growth/future expenses: For example, maybe you want a website “someday soon” but don’t have one yet. When you do, it will become a fixed cost. You can choose to adjust your prices at that point, or you can consider it now. Yes, growth is often funded by reinvesting profits, but it’s good practice to think about your future goals and ambitions and prepare accordingly.
Knowing ALL your costs will not only help you price your products and services, but will also help you build your future visions and goals for your business. Have you had expenses that caught you by surprise? Do you have any to add to this list?
