I really want to weigh in on this thread

but not quite sure which business I want to focus on when answering. Perhaps I’ll do both. I’m squarely in the service industry with both my funeral home and my cake business. One can be thought of as a necessity in some circles.

With my funeral home business I consider that while I am the only black funeral home in my area (and yes the funeral business is split on racial lines) I have to think of the economic condition of the community in which I serve. Its in a rural area first and foremost and my customer’s cant afford the price if I moved to the city where I would have about 75 different companies to compete with so my market rate differs. Not that my wholesale products take into consideration the fact that I’m in a rural community. I pay the same price wholesale as I would if I was located in Atlanta which makes pricing my goods and services very different. I admit to at times running at a deficit, but I can do that as my land and all of my buildings and cars and such are completely paid for. I run a debt free business in every aspect. I’m also in an industry where I can’t withhold my services for lack of payment so I offer and keep extensive books on payment plans. Markup for me consists of maintenance of property, taxes, employee salary and benefits, monthly upkeep- gas, electricity, chemicals, fuel, etc. I try to do everything as in house as possible, so I have a auto mechanic on staff. I’m old school -4th generation – so I’m not above bartering for my services in this area. Most of my profit though is made simply because I have a complete market share and therefore don’t have to raise my rates every time my suppliers raise their rates. I can afford to buy in bulk in many instances so I’m still operating on 2012 costs with some things. Automotive Fuel has been the biggest variable with me – it costs a lot to bring my cars back home (dead heading miles). I charge .85 cents per mile (which is above the federal reimbursement rate for instance) every time one of my cars cranks up, in addition to a flat fee for use of the vehicle. I see that many people are opting to drive themselves now versus getting in a limo. They are at least thinking about their costs which in the past-folks have just assumed that they should use a limo. My other profit comes from extending credit to my customers.

In the cake world, I’m of a different mindset. The products I sell are discretionary. Nobody needs cake…its a want and often a want people can accomplish themselves. However, I cater to a niche market – those people who cannot create a cake like I can and I charge accordingly. If I out price someone from getting a cake from me, that’s intentional, they aren’t my target market client. (This was a conscious choice I made, because this is a hobby I’ve turned professional and something I love to do without a headache or hassle.) I pick my client as they pick me and I’ve turned some people away that I just prefer not to work with on creating their cake. I’m of the impression (mistaken or not) that in the competitive cake industry in the city, people believe that the higher the price, the more exclusive the product. EVERY cake I make has a ridiculous profit margin because the people who are willing to buy my cake, are willing to pay it. Again, I take into consideration general overhead but I buy cake flour, powdered sugar and other dry ingredients in bulk – I bought 300 pounds of powdered sugar just the other day. Dairy products are a little more difficult to source and store in bulk form but I’m working on that this year. These fresh ingredients are my only fluctuating cost which I can’t control and I charge for my creativity at a ridiculous hourly rate. If I get my bakery moved to a store front and out of my basement (where its licensed), then I will buy a massive walk-in which will allow me to buy fresh ingredients in bigger quantity. I’ll need your eggs Kathryn 🙂

No the two businesses share nothing in common – I don’t even take a cake to a repast. I take that back – I’ll barter a cake as I did for my business cards and as I am doing for a revamped website.

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.

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.