Does Your Pricing Support the Business You’re Building?
Setting a price can seem straightforward. You estimate how long the work will take, choose a number and send the client an invoice.
But sustainable pricing needs to cover much more than the work itself.
Your prices must also account for operating expenses, administrative time, overhead, taxes, cash-flow needs and the profit required to keep your business moving forward.
A business can have a full schedule and strong sales while still leaving the owner wondering where all the money went. The important question is not simply whether customers are willing to pay your price.
It is whether that price supports the business you are trying to build.
Revenue Is Not the Same as Profit
Revenue is the money your business earns before expenses are deducted.
Profit is what remains after the costs of operating the business have been accounted for.
For example, a service may bring in $1,000 in revenue, but that does not mean the business earned $1,000. Materials, software, insurance, advertising, professional fees, payment-processing fees and other expenses may all need to be paid from that amount.
Depending on your business structure and tax registrations, some of the money in your account may also need to be reserved for taxes or sales-tax remittances.
This is why your bank balance does not always provide a complete picture of what your business has actually earned.
What Should Your Pricing Account For?
Before setting or reviewing your prices, consider the complete cost of delivering your service.
Your time
Include more than the hours spent completing the work.
Your pricing may also need to cover consultations, preparation, client communication, travel, invoicing, scheduling, revisions and follow-up work.
These activities take time even when they are not billed separately.
Direct expenses
Direct expenses are costs connected to completing a specific product, project or service.
Depending on your business, these could include:
Materials and supplies
Subcontractor costs
Shipping or delivery
Equipment rentals
Transaction fees
Project-specific software
Business overhead
Overhead includes the expenses required to keep the business operating, even when no client work is being completed.
Examples may include rent, insurance, bookkeeping, software subscriptions, phone service, website costs, marketing and professional fees.
The Canada Revenue Agency generally requires business expense claims to be connected to earning business income and supported by appropriate records, receipts or other documentation.
Non-billable time
Not every working hour can be sold to a client.
Business owners also spend time managing finances, responding to inquiries, creating estimates, completing administrative work and marketing the business.
If your prices are calculated as though every hour is billable, your revenue projections may be unrealistic.
Taxes and remittances
Taxes should not be treated as an unexpected expense that only appears at filing time.
Your pricing and cash-flow planning should leave enough room to manage your business’s tax obligations without putting pressure on everyday operations.
The exact amount to reserve will depend on your business structure, income and circumstances.
Profit and future growth
Profit is not simply extra money left over by accident.
A healthy profit allows a business to replace equipment, build an emergency reserve, hire support, improve its services and invest in future growth.
Pricing that only covers current expenses may keep the business operating today, but it may not support where you want the business to go next.
Warning Signs That Your Prices May Be Too Low
Your pricing may need attention when:
Your schedule is consistently full, but very little money remains.
You regularly use personal funds to cover business costs.
One late client payment creates immediate financial pressure.
Tax deadlines are always stressful.
You cannot afford to invest in equipment, marketing or support.
You are paying everyone except yourself.
Your sales are increasing, but your cash flow is not improving.
One of these issues does not automatically mean your prices are wrong. However, several of them together may indicate that your pricing is not fully covering the cost of operating your business.
A Simple Way to Review Your Pricing
Start by estimating the monthly revenue your business actually needs.
A basic calculation could look like this:
Operating expenses + owner compensation + tax reserves + desired profit = required monthly revenue
You can then compare that required revenue with your realistic billable capacity.
For a service business, a basic hourly calculation may look like:
Required monthly revenue ÷ realistic monthly billable hours = minimum average hourly rate
The word realistic is important.
If you work 160 hours each month but only 90 of those hours can reasonably be billed to clients, dividing your costs by 160 hours could leave your pricing too low.
This calculation provides a starting point, not a final answer. Your market, experience, demand, service quality and customer value should also influence your pricing.
How Bookkeeping Supports Better Pricing Decisions
Pricing decisions are easier when they are based on current numbers rather than assumptions.
Accurate bookkeeping can help you understand:
What the business is earning
Which expenses are increasing
How much profit is being generated
Whether cash flow is improving
Which services are most sustainable
Whether your prices still reflect your operating costs
A profit-and-loss report can show whether your revenue is translating into actual profit. Regular account reconciliation can also help identify expenses, subscriptions or fees that may otherwise be overlooked.
Ask-Her® Tax’s bookkeeping process includes account organization, monthly transaction recording, account reconciliation, financial reporting and practical guidance to help business owners better understand their numbers.
How Often Should You Review Your Prices?
Pricing should not be treated as a permanent decision.
Review your pricing when:
Your operating costs increase
You introduce a new service
Your experience or qualifications improve
Your workload becomes consistently difficult to manage
You hire employees or subcontractors
Your business model changes
Your profit margins begin to decline
Even when there are no major changes, reviewing your prices at least once per year can help ensure they still support your expenses, income goals and long-term plans.
Growing businesses may benefit from reviewing their pricing and profitability more frequently.
Build Your Pricing on Clearer Numbers
Your pricing should allow you to deliver good work without placing your business under constant financial pressure.
That requires understanding more than how much money is entering your account. You also need to know what it costs to operate, what must be set aside and what your business needs to remain profitable.
Clear, current bookkeeping gives you the information needed to make those decisions with greater confidence.
Ask-Her® Tax + Bookkeeping Inc. provides practical bookkeeping, tax and business support for small businesses throughout Alberta. Whether you need ongoing bookkeeping or help understanding where your business currently stands, our team is here to help.
Ready to build your pricing on clearer numbers?
Contact Ask-Her® Tax + Bookkeeping Inc. to discuss your business and the support you need.