A mentor once told me. “It’s not how much money you make that is important, but how much of that money you get to keep” and that has stuck ever since. It’s the golden rule of business.
We all know that business is about making a profit. The more profit you make, not to be confused with how much money you make, is the true king.
One of the biggest reason small businesses fail is because of the disconnect between the income of their product or service, and true cost of that product or service.
Business owners put a price on their product or service without knowing what their true cost is. And that is the biggest mistake a business owner can do. It can single handedly put them out of business.
To achieve profitability, you must know your cost, and price your product or serviced based on that information.
As a business owner, you cannot base your prices on what everyone else charges, because your cost of service is going to be different than everyone else.
In order to figure out your cost of service you have to track all of the expenses that are related to the service that you provide. You need to take into account things like, auto payment, chemicals, insurance, telephone, gas, etc. You need to add all of the service-related expenses together and divide them by the number of pools you service. That will give you your average cost of service.
Cost of Service
For example, let’s say that your service-related expenses are $3,500 and you service 60 pools
$3,500 divided by 60 = $58.33
That gives you an average cost of service is $58.33. It tells you that on average it cost you $58.33 to service each one of your pools. With that information you can now start to figure out the price you should charge for your service or if what you are currently charging is the right amount.
Calculate your cost of product and service, and set your price based on that information.
In our next article we will talk about profitability.