ness makes (except the items mentioned above), including the costs of production or those of service delivery.

Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition F

My business is profitable, why bother?

Yes, but is your business profitable enough? Even when you earn a decent living now, you cannot be quite sure that your business is as profitable as it ought to be.

You know your price is right when you can say yes to the following questions:

• Are you sure that you will be able to retire comfortably?
• Are you sure that you will be able to make the investments in the coming years, necessary to continue your business?
• Are you sure that you will be able (financially) to hire the people you need?
• Are you sure your business is profitable enough for a possible future buyer?
• Are you making a decent living yourself?
• Are there any existing loans and can you service them?
• Is your business competitive?

How can you be sure of these things? In general terms the answer is very simple. You can be sure of these questions when your turnover is sufficient to cover these points. Turnover is the product of quantity sold and price per unit. Let us focus on the price. Selling enough of your products or services is not the subject of this article.

What should be covered by the price you ask for your products or services? Let us look at the questions mentioned above. For each item we will determine the annual figure. When we have all these yearly figures, we add them up. This total represents the sum of all the annual costs and the reservations we have to make each year.

• Your retirement.
• Whether your are saving money in the bank or pay an insurance company, this money must be brought up by your business.
• Determine the sum you save or pay (or want to) annually for your retirement.
• Investments.
• Usually the yearly contribution to the Capital Replacement Reserve is the total of depreciations (writing off investments) and therefore related to the installed base (of machinery).
• This method is based on historical data. Depreciations concern investments done in the past.
• There is a better method that looks into the future:
• Decide what time-horizon you will use. Say 10 years.
• Take a spreadsheet and occupy 11 columns, 1 column for description and 10 columns for a 10 year period, one column per year.
• Write down your planning for future investments. One row for each item. Take the yearly inflation into account.
• Add up each column. Totalize the columns, now you have the grand total of future investments for the coming 10 years.
• Divide this total into 10, resulting in the average annual investment.
• Personnel.
• Make al list of your staff members followed by their annual salary. Depending on your local circumstances, you have to take the following items into account:
• Social security insurance.
• Medical costs insurance.
• Sickness, average number of days per year, per employee.
• Holidays.
• Courses.
• Travel allowance.
• All these items add up to the total annual cost of personnel.
• Management fees.
• The annual sum of money you should take out of your business to live from.
• Existing loans.
• If there any loans write down the sum you pay back every year and the interest.
• Out-of-pocket costs.
• Add up all costs your business makes (except the items mentioned above), including the costs of production or those of service delivery.
• Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition Fa

these things? In general terms the answer is very simple. You can be sure of these questions when your turnover is sufficient to cover these points. Turnover is the product of quantity sold and price per unit. Let us focus on the price. Selling enough of your products or services is not the subject of this article.

What should be covered by the price you ask for your products or services? Let us look at the questions mentioned above. For each item we will determine the annual figure. When we have all these yearly figures, we add them up. This total represents the sum of all the annual costs and the reservations we have to make each year.

• Your retirement.
• Whether your are saving money in the bank or pay an insurance company, this money must be brought up by your business.
• Determine the sum you save or pay (or want to) annually for your retirement.
• Investments.
• Usually the yearly contribution to the Capital Replacement Reserve is the total of depreciations (writing off investments) and therefore related to the installed base (of machinery).
• This method is based on historical data. Depreciations concern investments done in the past.
• There is a better method that looks into the future:
• Decide what time-horizon you will use. Say 10 years.
• Take a spreadsheet and occupy 11 columns, 1 column for description and 10 columns for a 10 year period, one column per year.
• Write down your planning for future investments. One row for each item. Take the yearly inflation into account.
• Add up each column. Totalize the columns, now you have the grand total of future investments for the coming 10 years.
• Divide this total into 10, resulting in the average annual investment.
• Personnel.
• Make al list of your staff members followed by their annual salary. Depending on your local circumstances, you have to take the following items into account:
• Social security insurance.
• Medical costs insurance.
• Sickness, average number of days per year, per employee.
• Holidays.
• Courses.
• Travel allowance.
• All these items add up to the total annual cost of personnel.
• Management fees.
• The annual sum of money you should take out of your business to live from.
• Existing loans.
• If there any loans write down the sum you pay back every year and the interest.
• Out-of-pocket costs.
• Add up all costs your business makes (except the items mentioned above), including the costs of production or those of service delivery.
• Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition F

he sum you save or pay (or want to) annually for your retirement.

Investments.

• Usually the yearly contribution to the Capital Replacement Reserve is the total of depreciations (writing off investments) and therefore related to the installed base (of machinery).
• This method is based on historical data. Depreciations concern investments done in the past.
• There is a better method that looks into the future:
• Decide what time-horizon you will use. Say 10 years.
• Take a spreadsheet and occupy 11 columns, 1 column for description and 10 columns for a 10 year period, one column per year.
• Write down your planning for future investments. One row for each item. Take the yearly inflation into account.
• Add up each column. Totalize the columns, now you have the grand total of future investments for the coming 10 years.
• Divide this total into 10, resulting in the average annual investment.

Personnel.

• Make al list of your staff members followed by their annual salary. Depending on your local circumstances, you have to take the following items into account:
• Social security insurance.
• Medical costs insurance.
• Sickness, average number of days per year, per employee.
• Holidays.
• Courses.
• Travel allowance.
• All these items add up to the total annual cost of personnel.

Management fees.

• The annual sum of money you should take out of your business to live from.

Existing loans.

• If there any loans write down the sum you pay back every year and the interest.

Out-of-pocket costs.

• Add up all costs your business makes (except the items mentioned above), including the costs of production or those of service delivery.

Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition F

coming 10 years.

Divide this total into 10, resulting in the average annual investment.

Personnel.

• Make al list of your staff members followed by their annual salary. Depending on your local circumstances, you have to take the following items into account:
• Social security insurance.
• Medical costs insurance.
• Sickness, average number of days per year, per employee.
• Holidays.
• Courses.
• Travel allowance.
• All these items add up to the total annual cost of personnel.

Management fees.

• The annual sum of money you should take out of your business to live from.

Existing loans.

• If there any loans write down the sum you pay back every year and the interest.

Out-of-pocket costs.

• Add up all costs your business makes (except the items mentioned above), including the costs of production or those of service delivery.

Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition F

ness makes (except the items mentioned above), including the costs of production or those of service delivery.

Required or desired annual profit.

Add up all these figures and you will have the yearly sum your business should earn, in order to reach the goals you have set. We call this total: Competition Base.

Is your price right and is your business competitive?

The answer to this question will be given by a comparison with your competition. Say that you own a consulting business. Let us assume that the average fee per hour for your type of consulting is $125. Your Competition Sum totals $934,200. You bill 7200 hours yearly. Your fee per hour should be $934,200/7200= $129.75. We call this fee: Competition Factor. Perhaps your real fee is about $125 per hour then you are loosing money.

Your Competition Factor is too high. How to get it down? There are several ways to reach this goal:

• Cost cutting. Look at your costs with a critical eye.
• Work more efficiently in order to bill more hours, and/or increase sales.
• Is the average sickness figure in your business higher than that of the competition? If so, look hard to find the cause.
• May be, the costs and terms of an existing loan are too high. Can you renegotiate or refinance it?

Summary.

Does the price you ask for your products or services cover your goals and your needs and your costs?

List all the items your business has to pay for yearly. This list includes provision for retirement, annual average investment, personnel, management fee, servicing existing loans, total out-of-pocket costs and required/ desired profit. The total sum of these items is the Competition Base.

Divide your Yearly-Billed-Hours into the Competition Base giving the Competition Factor. Compare your Competition Factor with the average fee per hour of your competitors. Your Competition Factor should be lower. If your real hourly fee is lower than your Competition Factor then you are loosing money, whether your accounts show it or not.

If your Competitive Factor is too high you can lower it by cost cutting, efficiency improvement, improving working conditions and refinancing.

The example we used above is based on a hypothetical consulting business. For a production business we can use the same model, albeit perhaps a bit more difficult in the case of multi-product processes.