Category Archives: mortgage

Pricing products is not just about what other companies are selling them for

Its about what it is costing me to get them. To a point, other’s prices don’t reflect what is going on in MY business. About 95% of what we sell is products. We will look at competitors prices but only as a local guide to what things cost. We do not base our prices strictly on what other companies sell the same product for. For example we have a couple of local competitors who sell boots but they don’t have the depth and breadth of product we have so they likely get fewer discounts from their vendor due to their low volume. We also look at the big box store’s prices. They may have the same stock numbers but they do not always carry a full range of sizes nor, for example, will they order a single pair of boots, for a customer when they are out of that size. We will order a single item of anything if it’s available and it’s a company we deal with. Academy or Wal-Mart or Cabella’s (as examples) will not do that. (If it’s something we do not carry there are conditions for return.) So comparing what we sell to a limited selection that others carry is not a true comparison.

For you, providing a service, you need to figure out what it’s costing YOU to provide that service. Of course after this you can see where you stand among your competition. If it costs you $100 to provide a service and it costs your nearest competitor $80 and you try to arbitrarily meet your competition, you in the hole before you get started. Possibly there would be ways to reduce your cost and still provide quality work or maybe your competitor is not providing the same level of quality, guarantee, etc.

Our prices include the actual cost of the item, including shipping. We also have to factor in
* rent
* profit margin
* electricity/water/phones
* insurance, workman’s comp
* supplies (paper, ink pens, ink for computers, etc.)
* office equipment (computers, copiers, cash registers, adding machines, etc.)
* payroll for ourselves and all employees
* maintenance and repairs to the building
* fixtures & furniture
* advertising
* vehicle fuel/insurance/maintenance
* etc, etc

There is a lot more to it than it appears on the surface. You probably have some of the same costs even though you are selling a service. Make sure you are including all theses costs or you are losing money on every ticket because even service oriented businesses have almost all these costs. We are adamant that we will not give stuff away. If we cannot sell an item at a profit, we will not sell it in our store. By then, if we are not making a profit, we are giving it away.

>>I think we need to raise rates, but we may lose clients because of it and that makes us really nervous.<< Also think about it this way. If your rates are really low compared to your competition, potential customers may think, “How great can their finished product/service be if they are that cheap?” If you raise your prices you may lose customers. However you may gain some as well. If you decide to increase prices, it is a good idea to give your current customers a head’s up, as I am sure you are aware. It would be nice to send a cover letter with a “new fee schedule” by mail with about 30-60 day’s notice. For new customers you could go ahead and start charging the new fee schedule right away. One more thing. In our case, dh and I do not work for free at our company. We each draw a monthly salary that is not slave wages but not a king’s ransom either. It is enough to have a reasonable lifestyle. We must live on the frugal side and do not drink champagne and eat caviar every night after work. LOL Really, we do not eat or drink either one! Believe me we have met people over the years who did not allow for a salary when running their own company. It gets me how some people think they are earning a living when they don’t take a salary from their business and they wonder why they have to keep robbing Peter to pay Paul. There is a couple in our Bible study who are about 10-15 years older than us. They used to be self employed, he was an electrician and she helped by answering the phone, etc. She remarked one time how they never drew a salary because “they couldn’t afford to”. How can you afford NOT to draw a salary? LOL When I started my coaster business in December 2012, my price was lower than what I charge now. I realized it was too low when I looked online & saw what others were selling at craft shows & compared quality. Also when I gave a set as a Christmas gift and the price was really too low, the recipient said, “Oh, these would sell in _____(a local upscale gift store) for $25!” My price was about 1/2 that, so I realized almost right way that my prices were too low. Since then I have gone up. I think I have found that “spot” that Kathryn talked about. My prices on my website ($30) include shipping but locals pay only $20 per set because I don’t have to worry about shipping, packaging, etc. When I made a price increase I first went to $16 for a while then went to $20 and have remained there since. Shay, I know some of this, maybe all of it, does not apply to you. And it seems I’ve chased some rabbits. However, I hope it helps.

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.

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.