I agree that pricing services is a whole lot more nebulous than pricing actual tangible products

This might sound odd, but are there other specialty groups for your type of business, with members from various areas, whom you could ask without having their answer influenced by competition? For instance, I’m on a lot of farming lists where we talk back and forth about pricing for this-or-that farm product. We can be very honest with each other because we’re not in each other’s local markets. So for instance I can post a question to one of the groups about how they do their pricing for tomatoes amongst their various market outlets, and I’ll get a bunch of answers back from folks growing tomatoes all over the country. It might take some work to find a similar professional group within your business’s specialty, but I would think such a group would be a goldmine of info.

I do think it’s safe to assume you’ll lose some customers if you raise prices. The lower the raise, the less they’ll notice and the fewer you’ll lose. One way to do this is to figure out where you are vs where you want to be, and then figure out a way to get there incrementally. For instance, for our eggs we went from 5% below cost, to 10% above cost, all at once. The price change was dramatic – $3/doz to $5/dozen. I think it’s paramount that we got above break-even as quickly as possible, but we could have gone to say 2% over cost in 2013, then 4% over cost in 2014, then 7% over cost in 2015, then “land” on 10% over cost in 2016. Or some other kind of incrementation. If you raise prices slowly, it won’t hurt as much. And if you raise them say every year in January, most folks will understand that and start to count on it. You may have a few hiccups along the way but no one can stay at the same price forever. I’m willing to bet most of your customers are thinking “hmmm, they haven’t raised prices in a long time, wonder when they’re going to wake up and realize they need to?” So you might have less pushback than you expect, particularly if you do it slowly. Just think “lobster in the pot” and that goes a long way towards explaining how pricing works from day to day.

One thing that surprised me is

that we haven’t raised our hourly rates for most of our clients that have been with us 4-10 years. So a client may have started with us in 2006 and we are still charging them the same hourly rate. I think it is because our hourly rate is so high ($125/hr in most cases), so it has been difficult in our minds to raise their rates even though they have been happily paying that for 8+ years.

Products are a little easier to price because we can go out on the web and see what it is priced at in other company websites, ie: Amazon, Dell, NewEgg, etc.

I think we need to raise rates, but we may lose clients because of it and that makes us really nervous.

All you self-employed people out there, I’ve got a question

Do you know your costs per item profit? Do you know how valuable your employees are by billable hour? Do you keep tabs on whether or not a certain product or service is worth offering based on a percentage of profit?
I’m curious to find out. What is a good markup? 10%, 20%? How often do you raise rates?
We haven’t raised rates per hour in a long time. Even though our rent, utilities, and health ins has gone up.
I don’t know where to get the information on such statistics.

We did a comprehensive review of our costs for each product stream about a year ago

For us, employees weren’t the main cost; feed and infrastructure was. But we did include employee time for all our products so that we’d know not only how many hours it took per product, but also how much that labor cost us.

We then looked at what we were charging, versus what that product cost us to produce. In a few instances we were already priced just about right, but in many instances we were priced too low. For ag products it’s relatively easy to raise prices during winter because the products are seasonal, and there’s a bit of a gap in between the last of our sales, typically around Thanksgiving, and the first sales of the new year, typically March. Sticker shock from the holidays has come and gone, other prices have already crept up and folks have resigned themselves to things costing more in the new year. So during that break even analysis last year, we set our 2013 retail prices at just about 10% above cost. Interestingly enough, that happened to be where my “feel” for the “right” price also happened to be, and where the going rate typically hovered.

Having said that, though, we did discover that the more basic the food item, the more pushback there was with the pricing. We also found that the market venue had a dramatic effect on whether our prices were perceived as “right”. For instance, consider the standard carton of 1 dozen eggs. If you go to the grocery store, you’ll find a wide range of prices, with the top-end egg easily costing 3x as much as the bargain egg. When we raised our prices away from the bargain basement price (which was below our cost), to that 10% above cost, we started getting complaints from customers that they could buy eggs at the grocery store for less. Yet, they were very quick to point out that our eggs were better than even the best of the eggs from the grocery store. So there was a definite disconnect between the price they paid and the quality they received. Frankly, they wanted the best egg at the bargain price. I even had one gal tell me that it was my duty as a farmer to go into the red so that her family could afford to eat our good eggs. When we lost her as a customer, that didn’t bother me in the slightest.

Yet compare our experiences with that batch of customers (along the lines of a CSA), to folks who would buy from us at the farmer’s market. We went there with higher prices than what we charged folks who came to the farm, because it took more work for us to get to the market, do the setup, booth rental, etc. So imagine our surprise when we were told that our egg prices were still too low, and we HAD to raise them. Excuse me? The folks who went to the farmers’ market were expecting higher priced items, and they became suspicious when those prices were too low. Okie dokie, so we raised our prices there and no one batted an eyelash. We’ll be going back there this year specifically for that reason.

I know you’re not selling eggs, but perhaps that gives you some food for thought (no pun intended) that it’s not just the markup; it’s also how you’re marketing and to whom. I do think that 10% markup is just about perfect, at least for our range of products. And if you’d like to see an example of our breakeven analysis, I’ve got them all in one Excel file, with each income stream on a different tab. Maybe that will give you some ideas for your own calculations. But yea, heck yea, any business who wants to stay in business has GOT to know those types of figures.

Mortgage is my only debt

So last month I wrote about my interest in knocking down my mortgage in addition to other obligations. I aggressively decided to pay an additional $1000 per month (beyond my normal payments) and be accountable to this group. I’m pleased to say that I exceeded my goal.

My mortgage balance last month was $161,840.96 and it currently sits at $157,150.34, $3,759.18 of which was above and beyond principal. I will not always be able to make that much extra payments, but I had some serendipitous funds come in, so I threw them at the mortgage.

So, I’ve been saving for awhile now to take a special trip with my kids and sister. We’re doing an 11-day trip (that includes 2 travel days) to London, Paris, and Rome. I’ve budgeted enough money for food and miscellaneous expenses. If I’m frugal and underspend, I will have additional money for next month’s principal payments.

I’ve been on furlough for nearly two weeks, but it looks like they’re coming to an agreement this week, so when I come back from vacation, I should actually go back to work! I’ll miss one full paycheck, I believe, but I have that covered. Life is good. :)

Wow, what an inspiration!

Thanks for posting this and good luck! I am about to buy a house and am going to get a 15 year mortgage. I also found out that if you pay biweekly instead of monthly, you can actually pay off a 15 year mortgage in 13 years. Maybe I will also pay extra like you so I can pay it off even sooner.

2 Mark from Cindy:

Your siggie line is an encouragement all by itself, much less all the rest of the story above it! You have some great things going on and some neat plans to tackle.

Killing the mortgage

A mention was made recently about Early Retirement Extreme. Intrigued, I took a look at it – both the wiki and the blog. Honestly, it’s not somewhere that I want to go, especially since I’m raising two boys on my own (I’m a widow), ages 12 and 10. But it set me to thinking that if those people can be so extreme, I could certainly step up my game a bit.

Some background – I have a comfortable job, which is as secure as anything can be (that is, I’m pretty sure it’s secure). I telework from home fulltime.

I save enough for retirement through a thrift savings plan (federal job), Roth IRAs, and the kids’ college accounts (529 plan). I have a few pensions in play, both from past jobs as well as my current position, rollover 401K, etc. I’m on target to have a nest egg of about 2.2 million at retirement.

We take a good vacation every year. I can pay the bills plus save some extra on the side. I shop at yard sales for household furnishings and clothes, but spend way too much at Costco! I moved to a college town purposely after my husband died so that my boys could stay at home while attending college and they won’t even need a car (bicycles rule in Chico, CA).

I still have a mortgage a bit above $160,000 but the house is probably valued around $400,000 (Zillow puts it at $463K). At my current repayment rate, I will have my home paid off in just under 12 years.

I was toying with the idea of throwing any ‘extra’ money towards the mortgage (my heart says to do that) but the analytical side of me says no, invest aggressively. I’ve been investing that money instead in the Lending Club and I’m very pleased with my return (currently 18% but will probably end up being around 11% after some default way down the road) and will continue to invest about $300 a month there.

So all is good but I can do better. So, I think I’m going to do a reboot of my finances and put myself on a bit of a financial diet. Trim a little bit here and a little bit there and throw any of that money towards the mortgage. So I can do the smart investing AND try to chip away at that last big debt – the mortgage.

I’m going to learn how to groom my dog myself instead of paying $35 every few months to have it done professionally. I’m going to have one ‘no spending’ week per month (ok, maybe fruit and milk). I’m going to focus on eating through the pantry and freezer stores. I’m going to declutter and sell anything that isn’t beautiful or useful (now, not someday). I won’t just wander through Costco and buy whatever strikes my fancy!

I will continue to pay my handyman/contractor for home improvements, but there are things I can do myself such as painting, redoing the stairs, etc.

I honestly don’t need a housekeeper (I have one that comes every two weeks for 3-4 hours). Instead, I will consider that cardio and clean energetically for my workout. The kids can help more with cleaning the bathrooms and vacuuming.

I honestly think that if I focus hard on this, I can probably free up $1000 extra a month to apply to my principal. If I did that, I could pay off my mortgage in 6 years and 2 months, not my current 11 years and 11 months. Wow! It would be paid off right around the time my older son startscollege.

Typing all this, I’m kind of getting excited about the thought. OK, accountability check. My current mortgage is $161,840. Let’s see just how much I can kill it over the next month or two.

You reminded me of a couple of key points

First, both our businesses are run on a cash basis. If we cannot pay cash, we don’t do it, buy it, or whatever. It wont happen till we have cash. The way I see it, paying interest adds unnecessary costs to overhead and eats into profit and expansion.

Second, most of what we sell at our store front consists of necessary work clothing for men and women in our area, mostly men. Due to their hazardous work most are required to wear steel toe boots, safety hats, and most companies are going to fire retardant clothing. Safety toe boots/shoes and FR clothing are our two big sellers. We try to stick to basics at our store but do have some very nice western boots that no one NEEDS but many want. Our prices range from about $100 up to about $500, retail. We have a very nice profit built but still sell short of MSRP. In my coaster business … no one NEEDS coasters and I run it on a cash basis. No cash? Go to www.NowGuaranteed.com – guaranteed payday loans, or it doesn’t get done/bought/etc. They could use saucers, plate, or napkins to protect their furniture. However they do make fine gift and are practical. My philosophy is that if I would not have it in my home or give it to a close friend as a gift, I won’t sell it. I understand that not everyone’s tastes are the same as mine. That is okay. Figuring my costs are some things are very easy and some are more difficult. My biggest urge that I fight is that there is money in the bank and I see something I think I “need” for my business but it’s really just a nice thing to have.

Husband signs the mortgage modification final paperwork today!

Which means that our interest rate on our loan (well, our biggest one) is locked in at 5%. After a year of fighting with Chase and sending paperwork upon paperwork over and over…and a recent quick check to confirm with them that what we submitted is correct (we were told early on that my income wouldn’t count, but before we signed on the dotted line, wanted official confirmation of that so we weren’t doing anything incorrectly since this is a legal document!).. ..we’ re finally here!
In other great news, we’re only about $10,000 away from what we owe in terms of value. (much better than the $80,000 we were off at the bottom of the market) I think the market has pretty much peaked for a while, so now it’s just to get our principle down so we can re-finance into a better rate and 15 year in the years to come.
Of course, now that I’m feeling stable and on a great path, my husband’ s work is talking to him about the possibility of a job out of state. It’s more money, but I carry the benefits for us, and he has major health issues. It’s all a little terrifying — I’d love for him to be able to take his career further to what it wants to be, but I’m afraid on whether we’d be able to make it all work financially. He’s fine if it doesn’t work out, but I’d hate to give his job the message that he’s not willing to do what he needs to do to succeed.

Just came back from Centrose Nursery in Gardena (CA)

Heard they were THE PLACE to go for Tree Collards (Red and Purple).

YEP. Definitely THE PLACE. Picked up a HUGE green tree collard, young purple sapling (John Kohler must have bought them all out!), 18 celery, 6 onions.

Good thing (1) we are just barely back working or I would have spent all day and a fortune there (2) I don’t have an open bed truck, or I could have really gone hog wild.


It is really surprising how “difficult” it is to pay something completely off

I called the 2nd cheetah this morning; they’re the ones who told me last month they would make a deal on late fees and they’re the ones I HAVE to pay off this month (interest free CC until Feb 20).

SO I went to pay them off this morning, and they go “well, FIRST your account has to get current ($178 pmt), THEN you can call back in 48 hours and we’ll waive some fees, THEN you can pay if off it you want.”

What the heck?

Grrr…so as much as I want to pay off a bunch RIGHT NOW…I am going to be patient and wait another 48 hours. They waived 1 late fee right then ($35) but the possibility of them waiving another $70-100 worth, is worth the wait. I don’t wait to pay other stuff off and then find out I don’t have enough to pay this guy off, so I am putting it all on hold for 48 hours.

Wow, that’s awesome

Start calling you the Great Cheetah Hunter! Go get ’em! Do you have any sort of trophy case or tombstones display to show off your various cheetah kills? We’ve only killed off one major debt since starting the DR plan, getting ready to kill off a few more in 2014, and I’m contemplating what sort of trophy display I want to use to celebrate.

Today I am cheetah hunting

Yep, if all works well, I should be able to kill at least 3 cheetahs, maybe 4. I had planned on killing 4 for sure, maybe 5, but then I decided maybe I ought to replenish some immediate staples needs, like oh, toilet paper, allergy meds, stuff like that, LOL.

I just killed one, I know for sure I will be killing another as soon as I get hold of someone willing to make a deal today. Even if they don’t make a deal, they are getting paid off for sure today anyway.

Wish me luck!

The day after the news story broke that Michael’s thought

they might have been hacked when Target was I realized there had been one under $5 debit from a debit card at Michael’s. I found which family member had done it and then called our bank to tell them we had and we would need a new card.

The bank told me they had not been notified of any such threat and unless I wanted to pay a new card, possibly new account set-up fee they weren’t planning on doing anything about it. HUH? I got the person’s name and extension and then went higher up the chain. Nope, unless they were officially notified by Michael’s they were not going to foot the expense for the number change out. That until they were notified officially they were under no obligation to do so. I told them I was notifying them and it was all over the news. No deal

I opted to do the expense myself, better safe than sorry. Telling them I had made a record that I had officially notified them of the possible problem. Yesterday I received notice that Michael’s had officially notifying them now and they would be refunding my fees I paid. Well duhhhh! Luckily no charges had been made between the time I notified them and the new card replacement.