All posts by Dan Boudreau

Dan Boudreau has devoted the last 20 years to coaching and mentoring regular folks into the captivating world of business. He authors and facilitates lively, transformative workshops on the topics of entrepreneurship, business planning, and training for trainers. He has inspired thousands of entrepreneurs to become successful business owners and leaders. Launching into his first venture in 1980 with barely enough knowledge to fill the back of a beer cap, he has embraced (and survived) the wide spectrum of business ownership, from single owner home-based enterprises to ventures employing more than 300 workers. Dan's top mission essentials are: laughing, loving, and learning. Armed with the business planning process as a teaching tool, Dan empowers ordinary women and men to create the financial stability and lifestyle they dream of. He is most proud of being acknowledged and appreciated by peers and friends for his ability to bring entrepreneurial ideas to fruition with a nod towards his warm, engaging personable style. In 2006, Dan compiled his knowledge (and bruises) into his first book, Business Plan or BUST! In writing this book, he combined his practical experience as a business owner with his expertise as a lender for an economic development agency, and tossed in his unique brand of wit. The end result: A refreshing perspective and practical style that makes the time-worn topic of business planning easy, fast and fun! When Dan takes those occasional days off from navigating the business world you might find him stuffed into a floating toothpaste tube sometimes referred to as a kayak (rarely right side up), or perhaps coaxing disturbing sounds from his guitar. His ultimate relaxation always involves fresh air, clean water and beaches—from botched attempts to outsmart fish in the rivers of northern British Columbia to flopping around in the waves or practicing applied inertia on just about any tropical sandy beach…
Entrepreneurship, Starting a Business, Writing a Business Plan

Setting Prices for Products and Services

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Q: How do I know what my time is worth and how do I charge accordingly?

This is question I am often asked by new and aspiring business owners as they work their way through the writing of their business plan.

The matter of determining what to charge for your time is a personal one. Start-ups sometimes make one of two mistakes in this area: charging too much or not charging enough. The antidote for undercharging is to run a complete set of financial pro formas to ensure that your rates are sufficient to pay the operating expenses and be profitable.  The way to ward off both under- and overcharging is to research your competition, with attention to the rates they charge for similar services. With this in mind, here are a few things to keep in mind when setting your hourly rates (list is adapted from the Online Business Planner’s RoadMap Step 44: Present Prices and Pricing Strategy).

  1. How price sensitive are your customers? If price is a major purchasing consideration for your customers, you’ll have to toe the line. If price is less important than other factors (quality, speed of delivery, brand, etc.), you might have more latitude as to how much you charge per hour.
  2. Do your customers decide to buy based on price or on other characteristics such as quality, location, or convenience?
  3. What is the cost of producing your products or services? Your prices must include the cost of providing the service (cost of goods sold), plus operating expenses, plus profit.
  4. What are your competitors’ prices for similar products or services? Those buying your services are continually comparing with competitors; you don’t have to undercut everyone, but you do have to be in the ballpark!
  5. How many units do you have to sell in order to break-even or earn a profit? Break-even will be revealed when you complete the pro forma financials. You will want to ensure that you break-even early enough in the year to allow time to earn profit.
  6. What are the Industry standard mark-ups or margins for your product or service? Standards or norms should be evident from your research of competitors. In some cases mark-ups or margins might be controlled or influenced by suppliers.
  7. What discount rates will you offer for bulk purchases? Be sure your regular prices are set high enough to allow for any planned discounts, deals, or costs such as affiliate marketing.
  8. How much will your customer pay for your product or service? At the end of the day, your customers will vote with their money. In the start-up stage, you can survey to determine how much they say they will pay, but once in business you will know whether or not you are making sales, and adjust accordingly. For example, you can test different rates to see if price makes a difference in your conversion rates.
  9. What is the relationship of supply to demand? For example, if you use subcontractors to provide services, their rates might determine how much your prices must be. If your subcontractor’s rates don’t leave you enough margin, you might be faced with finding new subcontractors or increasing your rates.
  10. What are the consumer buying trends? For example, an overabundance of providers might means lower prices; a shortage of providers might mean more pricing headroom, at least for a while. In almost any market, more competitors will mean you have to have a sharper pencil when it comes to pricing.
  11. What is your level of risk? Higher risk should equate to higher profit margins. Lower risk might enable
  12. What is your desired profit margin? Depending on how badly you need to work and how necessary your services are – a well qualified and credentialed consultant who doesn’t need a lot of work might command higher prices as long as they get the amount of work they want.
  13. What are your personal and corporate financial goals? Other factors come into play on pricing, such as how much money you personally wish to earn, and what financial aspirations you have set for your business.

Welcome to the tightrope we all walk as entrepreneurs and business owners. Hope this helps you find your niche.

To get started on your pricing, download the free worksheet we’ve created for you #33 Pricing. Use the worksheet to establish prices for your products and services. You will likely employ all three methods: pricing to market, pricing to cost and break-even pricing.

View a complete list of all 66 RiskBuster Business Planning Worksheets here.

 

 

Business Growth, Entrepreneurship

Defragging Your Business Will Help Your Bottom Line

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defrag_computer-001When my computer gets sluggish, I defrag the hard drive to make it more efficient. Defragging is a process that cleans up your hard drive. It does this by tidying up stray bits of information to leave more free space, which enables the computer to operate more efficiently. Businesses need to be defragged on a regular basis too.

Tough economic times demand the very best from business owners. For the most part, it’s easier for businesses to thrive in a robust economy. But when a downturn hits, the claws come out. Continuous innovation and persistent defragging are the secret to not having your business bounced out of the gene pool. On a larger scale it seems like the economy gets bloated from time to time and does its own defrag. In a very Darwinian way, many small businesses get cuffed into place or trounced out of existence along the way.

As owners, we’re defragging different parts of our business at any given time. You know those processes in your business that just break down, fall apart or become redundant over time? They get slower and slower, more noticeable, then downright annoying; that’s usually when we’re motivated to defrag.

For a small business there are always things begging to work more efficiently. Here are a number of areas of you might consider for potential defragging:

  1. Business Concept – your vision, corporate mission, which products and services to offer, and short-term business goals
  2. Marketing – market area, customers, competition, how you sell your products and services, advertising and promotion, and pricing
  3. Operations – computer hardware and software, how you manage your people, policies on safety, banking procedures, invoicing, trade accounts, your telephone service, insurance, and staff training
  4. Financial – sales forecast, costing, operating expenses, asset management, how you collect your receivables, and how you manage your payables

If the items listed above look suspiciously like the parts of a business plan… they are. Improvements to any of the above areas can make the difference between smooth sailing or crashing in a ball of flames.

In times of plenty, we tend to over indulge and get bloated. This is as true for businesses as it is for people. When the economy gets crazy and none of the old rules seem to work, it’s time to trim the bloat and get back to basics.

The sun always shines after a storm. There are positive economic times and an abundance of opportunities just around the next corner. The lean, efficient entrepreneurs will survive to do business on those bright days.

Entrepreneurship, Self-Employment, Starting a Business

Keep Business and Personal Lives Apart

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personal_business_livesWhen it comes to owning a business, newbies often make the mistake of combining their business and personal affairs. As a business owner, it’s healthy to separate yourself from your business and treat your business as a separate entity.

A little investment of energy early on can bring huge dividends later in the life of your business. For example, set up a business bank account, rather than mixing your business and personal expenses – your accountant and bookkeeper will both be thankful. You will also enjoy the benefits: less confusion and lower accounting and bookkeeping costs, particularly when your friendly neighbourhood tax auditor comes knocking.

New owners have a tendency to dovetail their personal and business lives, usually in an effort to save a few dollars. I have done this in the past and it only leads to difficulty. Any savings quickly evaporated when it came to sorting out the mess later.

Think of your new business as a separate entity, like having a baby, building a house, or hatching an egg.

Here are some ways to separate your business from your personal life.

  1. Separate your personal time from your business time.
  2. Coach your customers to contact you during your business hours.
  3. Train your friends to contact you during personal hours.
  4. Consider yourself to be an employee of your business and pay yourself a wage.
  5. Open a business bank account, pay business expenses from that account and pay your personal expenses with your wages.
  6. Establish separate telephone and fax numbers for the business.
  7. Create a separate Internet and email presence for the business.
  8. If you’re home-based, create a separate space for the business and if possible, have a separate entrance for customers.
  9. Even if your business is a proprietorship for which the tax authorities view you and your business as the same entity, set-up your business with its own bookkeeping and accounting systems.

There are some great payoffs for separating your personal and business affairs. You will:

√      Know your personal and business expenses

√      Be more effective at calculating costs and setting prices

√      Find it easier to deal with auditors

√      Lower your bookkeeping and accounting costs

√      Be better prepared if you decide to sell the business or bring in a partner

√      Have more peace of mind

With much to gain and little to lose, I urge you to consider your business to be a separate entity from yourself.

Related Articles:

Reality Check: A Pre-Business Physical for Business Planners

Isolation Not Always the Entrepreneur’s Best Friend

Myths About Owning Your Own Business

Pros and Cons of Being Self Employed

Business Planning, Entrepreneurship

Everyone Needs a Good Business Plan

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everyone_planMention the need for a business plan to the uninitiated, and they will likely give you a lot of reasons why they don’t need one. But anyone who has successfully completed a business plan knows it is a healthy learning process that enables you to manage risk and confidently start or grow your business.

Keep the body of your business plan brief. Attach important detail and supporting information in the appendices. In the body of your plan, make reference to the appendices so your readers will know where to find details.

Write for your average reader. Don’t try to baffle your reader with big words. Explain any terms that might be confusing. Break the complex down until it becomes simple.

Clarify your assumptions for the reader. You will be doing some guessing. If you’re assuming an interest rate of 8 percent, say so. Use only the safest assumptions, and use them sparingly.

Support your narrative and financial assertions with relevant documentation. There are a number of possible appendices that might add to the credibility of your business plan. For example, if your resume will help your reading audience to understand why your experience qualifies you to own and operate the business, attach it to your business plan.

Don’t slag your competitors. They are not necessarily enemies, just people who have similar goals to yours. When describing the competition in your business plan, never be critical of them; focus on your strengths and positives rather than the competitors’ weaknesses and negatives.

Prove your business case. First, identify any potential flaws or reasons your business might fail. After that, if you still have confidence in the idea, go all out to prove the business case. In its simplest form, this means ensuring that your business can survive in the gap between supply (cost) and demand (price). If you can’t prove your business case find a different business or get a job.

Eliminate inaccuracies and inconsistencies. A good business plan will increase your confidence by enabling you to minimize uncertainty. On the other hand, mistakes erode confidence. Always have someone proof read your draft plan before attempting to use it to apply for a loan.

Don’t make your reader to go fishing for information. Create one complete, cohesive communication package that makes it easy for your reader to read and understand.

A good business plan template provides you with a checklist so you don’t miss important points, and a sensible structure in which to organize your thoughts and information. A business plan makes it possible to identify and solve potential problems before you risk your house equity or savings on a business venture.

For a free business plan template visit http://www.riskbuster.com/tools/

Related Articles:

Make a Plan to Succeed in Business

Eight Tips for Planning Your Business

Does Your Business Plan Prove Your Case?