Are You Charging Enough for Your Services/ Products? How to Set Up QuickBooks (QBO) So That You Can Keep Track of Your Margins?

One of the most challenging or trickiest things you can face when you start running your business is how much you should charge for your services/products. If you overcharge, you might end up with zero work, and if you undercharge, you may be swamped with so many orders/work that you end up not making any tangible profit. Or your potential customers will think you’re inexperienced or cheap.

If you charge the exact prices your competitors charge, why should anyone pick your brand over others? And since you are not all that unique, why should your target audience even buy from you? It is a continuous circle of both questions as well as choices.

In this guide, you will learn what to do in order to start charging enough for your services/products. And you will also learn how to set up QuickBooks so that you can keep track of your margins.

Let’s dive in.

Objectives

Let’s have a good understanding of some key financial concepts first about cost and costings:  

Direct costs or Indirect costs: Direct cost incurred to make service/product available and Indirect happens with other Selling & Administrative costs 

Profit margin: 

Gross profit=Revenue- Cost of Sales (Money made directly from selling products)

Net profit= Gross profit- General & Administrative expenses

Break even: How much do I need to make in revenue to cover ALL my expenses.

• Do Your Homework

It does not matter if you are competing for ideal customers in a local or global market. The principle is the same: know who your competitors are.

Apart from knowing how much your competitors charge for the same services/products you offer, carry out in-depth research to discover the precise package your competitors offer their customers.

For instance, are their services poor, and is there something you can do to improve yours so that you have the edge over them? Do more expensive products come with warranties or guarantees or lots of good testimonials? Do the products perform exactly as advertised? Etc.

Getting answers to these – and related – questions should inform the price range you can work with. Add your experience, skill level, and reputation to the mix, and you should be able to determine the perfect price point that works for you.

And be ready to explain – in graphic details – to your prospective customers why you are charging such a sum, the added values you bring to the table, etc., that you alone provide.

• Charging Hourly Rates vs. Flat Fees: Determine Which Works for You

If you provide services only, determining whether to charge your price per project or by the hour is highly essential.

In most cases, clients like or prefer flat fees in order to avoid surprises when the time comes for them to pay up. But many service providers such as photographers and web designers prefer hourly pricing so that they don't lose too much money when a project demands more attention/work than they initially anticipated.

Therefore, create a plan and try out both approaches for a few weeks or months until you decipher what works best for your brand.

• Break Down the Hours and Bundle Them Up

If you charge per project as a service provider, you may still need to break down the hours. Figure out how much one hour of your time is worth.

Start by penning down how much you want to make every year. Then break it down into hours. A work year has 2,000 hours or thereabout. Take that target annual salary and divide it up by 2,000.

Let’s say you want to earn up to $300,000 per annum. That means you should charge at least $150 per hour i.e. $150 x 2000 = $300,000.

Next, calculate the costs you may need to cover, such as your electricity, smartphone, internet, supplies, etc. If you have employees, they must be paid as well. When you have done all these, add them to your final rates.

• The Packaging Matters a Lot

Now, with those rates in mind, consider how to present the rates. The best way to go about it is by putting the power of choice in the hands of your potential clients. You can do this by presenting several options so your customers can choose the option they prefer or match their budget.

Moreover, presenting multiple options also gives you the unique opportunity of upselling your services in order to make more money.

You can also consider creating a package price in which you bundle several services and then offer a mouthwatering discount if the customer goes for the entire package. This also puts your customers in charge as they feel they are getting an excellent deal.

Hot Pricing Tips to Help You Determine the Right Price to Charge

Several small and medium-sized businesses also struggle to find the ideal price point that maximizes their revenues. 

You should calculate your price by adding your costs to the profit you want your business to make. In other words,

Costs + Profit Margin = Price

Don’t forget that ‘Costs’ include overhead expenses, administration, materials/third-party services you need to provide a well-rounded package, shipping fees for physical products (even if you stated ‘Free Shipping’ on your web page), etc. So, you are not alone.

And the truth is that there is really no magic formula or one-size-fits-all method that helps you to price your services/products perfectly. You will be forced to change your prices from time to time based on the economic atmosphere and as you continue to gain experience.

You may also need to change your prices when you tweak the services you offer or bump up the package of physical products you deliver.

However, the following pricing tips are compiled to help you determine the right price to charge for your services/products:

Understanding Profit Margin

It is vitally important to fully understand profit margin so that you can make tremendous changes in your daily operations after analyzing data. This will likely lead to increased profit in the long run.

The 'profit margin' refers to the amount of revenue left after you have paid for all costs associated with delivering services or products. It gives you an idea of the overall health of your organization and how much money your business is making. It also enables you to quickly identify several ways you can follow in order to boost your business.

You can calculate your profit margin as a ratio of your net profit to the total revenue.

If you offer only services, you may have to consider several factors such as indirect and direct costs, administrative and marketing costs, etc., in order to figure out where you can easily cut costs. 

And if you sell products only, you can easily define your product margin as the profit margin for each product. 

How You Can Boost Your Profit Margin

You can significantly improve your profit margin by doing the following:

• Eliminating the office, i.e., relying heavily on mobile apps for setting up remote offices.
• Going paperless, i.e., not relying on too much paper
• Cross-selling and upselling
• Sharing space with another company in order to generate extra cash

To significantly boost profit margins, it is essential to keep records. This is where you need to use one of the most popular and efficient accounting software known as QuickBooks.

QuickBooks is innovative accounting software with built-in tools for managing your customers, clients, vendors, inventory, and finances. The accounting software automates several aspects of managing your business by tracking products, calculating sales tax, tracking profit margins, etc., and updating transactions automatically in your register.

You can use QuickBooks to track profit margins and create reports from time to time that reveal your profit margin at different aspects of your business. This way, you will know whether your brand is growing or still requires additional tweaks to set it right.

Here are some ways of boosting your profit margin - ( For small businesses/sole proprietors)

Protect Your Finances

If you incorporated your business, This means you legally make it a separate entity so it’s independent of you. It requires more work to establish, and you have greater accounting responsibilities. However, if you are a sole proprietorship it is easy to set up. Being a sole prop means you can’t be separated from your business. You’re personally liable for your company’s finances, such as debts that it incurs. The good thing is in case of a business loss, you may be able to reduce your overall tax liability.

Separate Business and Personal Finances

It’s a good idea to start separate bank accounts for your company the day you start business.

Understand Your Income

It’s really important to know exactly how much comes into your business that will help you budget and ensure you have enough cash to cover your business expenses.

Handle Bookkeeping and Payroll Online

Having a bookkeeper to monitor and manage your books is important. Cloud-based systems like QuickBooks update automatically any time bookkeeping or tax laws and regulations change. This will increase the accuracy of your numbers and minimize the risk of human error.

Cut Costs Regularly

Did you know that It’s possible to reduce your costs so you can improve your profit margins and have more money to invest back into your business?

Some ways your business may be able to cut costs include:

• It’s always a plus point to be paperless to save on office supplies.
• Working from home
• To source  materials from a new supplier
• To Automate processes to reduce staffing needs
• To improve the energy efficiency of your office.
• Make sure to pay bills on time in order to avoid late fees
• Using free or inexpensive marketing methods such as social media.
• Always negotiate every rates for physical products and services

How to set up QuickBooks Online to track your margin

So now, how to use the project profitability reports in QBO?  First, click on the projects page to check on the profitability of all your jobs. The projects page lists all of your current projects and all the snapshot of each project’s profitability. Click on a project and take a closer look. You can see the project’s profit margin and a graph showing income verus costs at the top. Income comes from your sales such as invoices and sales receipts. On the other hand, The costs come from project expenses, cheques, bills and time you’ve entered for the job. You can see the summary of your income and costs in the overview tab. The interesting part of the QBO project is that you can see the income being deducted from the costs which will display the profit of your business.

How to price your products

Here are two ways of making profits. Markup and Margin. It really depends on what type of business you have. Make sure to contact your CPA before Pricing your products. Many businesses use makeup because it ensures that the revenue is being generated on each sale. Margin is helpful when you want to know your actual profit for each sale. Please look at the picture to learn how to calculate your markup and profit margin.

Conclusion

Now that you are here, it is assumed and believed that you have learned a thing or two about pricing your services/products in order to maximize your revenue/profits. And you have discovered the power of QuickBooks and how you can use this accounting software to track your margins. So, what are you waiting for? Get to work right away, and start transforming your business/brand for the better using the tips you have learned in this guide.