Welcome to this week’s Premier Business Operations newsletter…

Before I get too deeply into this week’s newsletter, several readers have asked about previous editions.  You can find these online at https://premierbusinessoperations.wordpress.com/ or alternatively by going to the Premier Business Operations website:  www.premier-business-operations.com.

Hopefully you remember my friend Annie, the enterprising maple syrup entrepreneur.  When we last left Annie, she was struggling with trying to figure out how to make her business profitable.  In a previous newsletter, we helped Annie calculate what the costs of her products were.  Armed with this knowledge, we can now look at other factors that may be involved in determining the price for her 8 oz. bottle of pure maple syrup.

There are many factors that feed into setting a sale price for a product.  While not a comprehensive list, things to consider besides the cost of production include:

  • What are competitor prices?
  • What will the market bare?
  • What overhead costs must be covered?
  • Who is the prototypical customer?
  • What net income do you want to make?

Examining competitor prices, both on the internet and a few retail shops, the average sale price of an 8 oz. bottle of maple syrup was found to be $11.12.  This research covered various regions in the US and specifically in the metropolitan St. Louis area; Annie’s territory to target.   You may recall from a previous newsletter, her cost of production was estimated at $5.13, so it sounds like she may be poised to be profitable if she is willing set an appropriate price on her maple syrup.

The next question for Annie that we’ll cover in this issue was an itemization of her overhead costs; those that are always present whether she sells 0 or 100 bottles.  While not a comprehensive list, here are some of the most prominent and overlooked ones:

  • Site or entry fees for tables or stalls at:  farmers markets, craft fairs, flea markets or other festivals.  She has been going to about 15-20 per year with a guess cost (unfortunately doesn’t have any records or receipts) between $50 and $100 each.  Taking the average of $75, she might spend $1500 per year simply on these site fees.
  • Cost of rent for a commercial kitchen.  The majority of locations that Annie sells her products require the use of a commercial kitchen for food preparation.  She uses these about 4-6 times per year at a cost of $100 each time, for an averaged total of $500.  Again, this is a guess since there are no records.  I think we should address the whole notion of sound record-keeping practices in a future edition of this newsletter.
  • Maintenance, gas and insurance of her truck and travel costs from event to event.  As previous areas, this is a guess since there are no records.  The best we could do was to estimate costs.  Assuming 20 trips for where she sells he products of an average 50 miles round trip, we simply used the IRS rate for 2010 of 50 cents per mile for a total of $500.  To have a more complete picture of this overhead cost, we doubled this amount to cover other errands necessary for the business.
  • Taxes!  No matter what your business, you need to account for The Taxman.  As my father has been saying for years, “the two constants in life are death and taxes”.  Since Annie’s business is an LLC, and her taxes are part of her personal income taxes, a reasonable estimate is the 25% bracket that she and her husband are in plus the Missouri state tax rate of 6%, for a total of 31%.

As before, I left Annie with a little homework assignment as well as a customized spreadsheet to help her calculate the net income of her business.  Hopefully when I visit her next, we’ll have a better picture of revenue, costs and net income of her business.  Using the provided spreadsheet should make her life a lot easier. 

Whether you’re currently a business owner or aspire to be, it’s never too late review the pricing strategy and costs of your business.  Being a small business owner, every dollar matters.  To find out more about Premier Business Operations can help you develop your business plan, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Have a great week…  and don’t forget to keep tabs of your dollars…