You may be an unwitting victim of common pricing mistakes. These drive-by villains can kill your bottom line. Read on to learn if your profit margin is a target.

Small Business Pricing Mistake #1 – Everybody’s Doing It

You’re almost ready to launch a new product, but still haven’t set the price. To save time, and let’s be frank (or Betty or Joe… ) , to avoid the number crunching, you set your price based on your competitors’ prices. Although the lowest is $99, and the highest is $875, most are in a tight range between $425 and $475. Hmm… how about $462? $462.15? Perfect!

Does this scenario sound familiar to you?

There are two basic problems with this approach. The first is the assumption that your competitors are making a profit with that price. Even big corporations can have the wrong price and take a bottom line beating. While I hated hearing it as a kid, this type of pricing has me quoting my mom:

“If all your friends jumped off a bridge would you jump off too?”

The second problem with this approach is apples, or perhaps I should say apples to oranges. How does their expense structure stack up against yours? Is this truly an apples to apples comparison? Or did some Florida oranges sneak in? Even if, and that is one BIG if, their product is priced correctly, your expenses may be higher which would result in a price that is too low for your business.

In fact, if a direct competitor is an exact clone of you, how do you stand out? You can’t be a leader if you’re following someone else.

Small Business Pricing Mistake #2 – Death by 1,000 Cuts

When working with clients on their pricing I invariably hear, “Why are you asking about that? It’s such a small amount?” This profit killer isn’t a drive-by, it’s death by 1,000 cuts (yes that was really a form of execution). Small doesn’t mean harmless.

Consider a weekly expense that is $5. Seems like peanuts in the grand scheme of things. Now multiply that number by 52 weeks, at $260 it doesn’t seem quite so small. What if you were ignoring five different $5 expenses every week? That’s $1,300!

Small things add up, ignore them at your own peril.

Small Business Pricing Mistake #3 – Why Are You Working for Free?

Many entrepreneurs assume that their pay is in the profit margin. Wrong. Profit margin is what your company earns. What about your time? If you did that same work for another company wouldn’t you bill them? Any product or service you sell involved some of your time, shouldn’t you be paid for it?

Look at it another way. What if someone else had done the work? Wouldn’t you have to pay them? Calculate the cost of your time (if it helps, imagine you’re the employee) and include that in the price. And don’t forget to actually pay yourself.

If you still want to work for free give me a call – I have plenty of projects on my desk!

Final Thoughts

Have you made these pricing mistakes? Are there others you struggle with? What would be the easiest for you to fix today to grow your bottom line?

Oops Photo via Shutterstock

The post 3 Common Small Business Pricing Mistakes appeared first on Small Business Trends.

You’re probably getting outside more, perhaps starting practice on your softball team, prepping your garden, or using the extra daylight for evening walks.  Springtime inspires a universal sense of starting new activities and taking a fresh look at the world.  Why not include your business in that fresh look?

Spring cleaning your finances can boost your small business profits. It will be quick, easy, and unlike cleaning, I promise it won’t make you sneeze.

First Step to Spring Cleaning: Lose Expenses That Don’t Deliver Value

When was the last time you evaluated the return on your subscription to “The Widget Makers Magazine?”  Do you just pay the bill out of habit?  Perhaps you even have the subscription set to auto pay.

It’s easy to fall into a routine, doing things because you’ve always done them.  While it delivered value in the beginning, the tool or resource may no longer meet your need.  The business world is always changing and evolving, you need to be sure you change with it.

Here’s a quick and easy way to spring clean your expenses:

• Print out a list of your expenses from your accounting or bookkeeping system
• As you read each line answer the following questions yes or no.  If the answer is yes to any of the questions, cross out that line.
  • Did this expense produce any new leads, customers or revenue in the past three months?
  • Is this expense necessary to keep my business running?  This may include items such as your office rent, business filings, or attorney fees.
  • Is this expense necessary to service my clients?
• Take a hard look at the expenses that are left on your list.  Is it something new that is still being tested?  Imagine having to defend the expense to a stranger (or me if that helps.)
• Eliminate the expenses that aren’t still being evaluated or you can’t objectively defend.

Doesn’t that feel good?  You’ve cleaned up your expenses, saved some money, and reinforced the right places to be investing your hard earned cash.

Second Step: Lose Activities That Don’t Deliver Value

Time is money.  Time is actually your most precious asset.  It can’t be saved up, rolled over or even purchased from someone else.  Every person gets 24 hours in a day and seven days in a week.

Getting rid of activities that don’t produce results is just as important as getting rid of underperforming expenses.  The review process is very similar.

Start by writing a list of all your common activities, there are no write or wrong answers, just brainstorm.  You can do it in word, on a piece of paper, a white board or even borrow your pre-schooler’s crayons.  Just get a list put together.

Once you’ve got all your activities down on paper it’s time to do a review.  Ask yourself the following questions.  If the answer is yes cross out that activity:

• Did this activity produce any new leads, customers or revenue in the past three months?
• Is this activity necessary to keep my business running?  Paying taxes doesn’t generate revenue but it does keep you out of jail.  That makes it a necessary activity.
• Is this activity a necessary part of servicing my customers?

Just like you did with the expenses above, take a hard look at the activities left on your list.  Is it something new that is still being tested?  Imagine having to defend the activity to an investor or colleague.  Eliminate the activities that aren’t still being evaluated or you can’t objectively defend.

Doesn’t that feel good?  You’ve cleaned up your expenses, saved some money, streamlined your activities, opened up time on your schedule and reinforced the right places to be investing your assets.

Final Thoughts on Cleaning Up Your Small Business Finances

Do you have a spring cleaning ritual for your business?  What does it involve?  After doing these exercises, what have you discovered or changed in your company?

The post Spring Cleaning Your Small Business Financials appeared first on Small Business Trends.

So why do businesses fail to keep score in the middle of their season?  Why do entrepreneurs wait until the year ends to determine if they are even still in the game?  Do you ignore the points on the board until the buzzer sounds?  Why not create a business scoreboard to know your status at a glance?

Use 5 Key Metrics To Easily Keep Score of Your Busines Performance During The Year

When you attend a game, or watch one on TV, the scoreboard is easy to see and easy to understand.  The other team is up by 5 points, your team is first and goal, or your team has a power play.  You don’t think twice about the depth of information you are getting at a glance.

Your business scoreboard should serve the same function and have the same visibility.  It should have no more than 5 key metrics. The metrics should be easy to understand, and should be displayed in a place where you will see them every day.

At the end of each month review your performance against goal.  Think of your goals as the competition.  The scoreboard tells you if your business is winning or losing.  Reviewing monthly is often enough to allow for course correction, but not so often you get distracted from running your business.

Small Business Key Metric #1 – Total Monthly Revenues

Think this is a bit obvious?  Can you (without looking) tell me what your target revenues were for last month and your actual revenues for the same period?

Obvious doesn’t mean useless.  Big signs that say “Bridge Out” are obvious, but I’m sure glad they exist.

It’s crucial to look at actual money coming in the door.  A bill or invoice is not a check in the bank.

Small Business Key Metric #2 – Total Monthly Expenses

You may be tempted to snort and say, “Did she just graduate?  Of course I need to look at my expenses.”  Great, what were they last month?  What were they supposed to be?  I see countless entrepreneurs ignore this number, and consequently they fail to meet their profit goals.

Even if you have the highest scoring game of your life, if the other team scores even more points you lose.  In business, even if your revenues are through the roof, if your expenses are higher you will lose money.

Be sure your monthly review counts all expenses paid.

Small Business Key Metric #3 – New Clients

Can you imagine if a professional basketball team said they were going to skip the draft this year?  Or if baseball teams stopped talking to players that just became free agents?  Teams that fail to bring on new players will fall behind their peers. As their roster ages or gets injured the pool shrinks and so will their performance.

Every business needs to be bringing in new clients.  However it is easy to lose sight of this until all your players have bad knees and grandchildren.  Remember even clients that start small can be nurtured to bigger contracts.

Small Business Key Metric #4 – Repeat Clients

While new blood is great, can you imagine a team being successful if every player was new?  There would be no cohesion, no shared experiences, and no foundation.  In other words, bedlam!

Repeat clients provide a foundation on which to build your business.  Not only is it easier to sell to an existing client, it costs less money.  These are things that add to your bottom line.

Yet many entrepreneurs fail to appreciate their current customer base, and worse they fail to show their appreciation.  Making this a key metric keeps you focused on retaining and nurturing the very people who helped you achieve your current success.

Small Business Key Metric #5 – Wildcard

Shots on goal would be a useless statistic if you were watching a football game.  Nobody sacks the power forward in basketball (if they did they get thrown out of the game, not cheered).

All businesses are not created equal.  Some sell services, others widgets.  Some sell to consumers, others to corporations or even governments!

Consider what is one other activity or metric that is crucial to your continued success.  Be sure it is something measurable and objective.  Add that as your final business scoreboard statistic.

Final Thoughts

Do you have a business scoreboard?  What’s on it?  Will you make one now?  What is your wildcard metric?

Scoreboard Photo via Shutterstock

The post Keep Score During the Year for a Blowout Business Win appeared first on Small Business Trends.

You think the only way to achieve these goals is a painful one.

In fact, you believe that walking on broken glass would hurt less than “doing the books” on a regular basis.  Fear not!  Here are 5 easy ways for you to stay on top of your bookkeeping in 2012:

1.       Make Friends with Technology

There are cost effective ways to make collecting and recording your business expenses easy.  This is not a myth.  I will not be suggesting you consult the Loch Ness Monster in the next bullet.

Despite being a finance geek I absolutely hate tracking expenses.  Then one day I discovered Shoeboxed and the world became a brighter place.  Shoeboxed will convert expenses into an organized data file.  No more typing in paper receipts!

The best part is that you can submit expenses just about any way you want short of carrier pigeon.  Electronic receipts can be emailed, scanned copies of receipts can be uploaded for processing, and hard copy receipts can be submitted in the postage paid envelopes supplied.

Other easy and cost conscious options you may wish to consider are; Concur, Expensable, Keebo (UK Based), and Neat.

2.       Call In Reinforcements

Would you pay someone $100 to keep from being in a head on collision at 70 mph?  How about $200?  $1,000?  In fact it is hard to give an upper limit because you know the effects of a head-on collision would be devastating, potentially fatal.

Wouldn’t you pay to save your business from a similar fate?

Technology alone may not be enough to conquer your accounting needs this year.  A great solution that is easy on the budget is a bookkeeper.  Shop around for a reputable one who will strive to stay within your budget and provide regular reporting on key metrics.

3.       Visual Reminders to Open Your Eyes

Select a picture or graphic that reminds you of the consequences if you fail to follow through.  Then select a graphic that depicts the benefits of success.  My first picture would be a Pinto driving off a bridge, and the second would be a Porsche 911 Turbo convertible cruising down the Autobahn.

Put these on a page, print it, out and hang it on your wall.

4.       Make Falling Off the Wagon Hurt

Keeping resolutions is hard.  Creating new habits is hard.  Only 19% of people who make resolutions actually keep them.  Clearly positive reinforcement alone will not work.

Every month you fail to keep your commitment do the following.  Get a one dollar bill from your wallet and say out loud, “I’m simply throwing money away.”  Then tear up that bill and throw away the pieces.  Need a bit more drama?  Burn it instead.

If the $1 bill doesn’t make you wince, try a $5, $10, or even $100 bill.  By not tracking your financials you are actually throwing away far more money than you destroy in this exercise.  In fact, you may be about to drive your business right off a cliff and not even know it.

5.       Be Publicly Accountable

While peer pressure was the bane of your existence in high school, now it can be a very effective tool.  Declare your bookkeeping intentions.  Not just to your Mom, your golf buddy or your dog.  Declare it on your blog, this blog, or some other painstakingly public forum.

In your public declaration include a commitment to provide monthly or quarterly updates on your progress.  Failure to post an update will cause people to assume that you didn’t follow through.  Who wants that verdict in the court of public opinion?

Final Thoughts

Which of these ideas will work for you?  Do you have another tip or trick that can help people tame the bookkeeping beast?  I really will come back and check for updates in the comment section.

Porsch Photo via Shutterstock

The post 5 Easy Ways to Stay on Top of Your Accounting appeared first on Small Business Trends.