Why is understanding cost so important in business?
Well, the short answer is to make sure that you are making money (aka a profit).
Earlier this year, we taught a marketing business class that helped Sweet Makers develop a custom marketing plan for their businesses.
As per usual, the question of pricing came up in the discussion, which I always love to address! If you are going to be successful in business at all...you must understand your cost. Otherwise, how do you know if you are even making any money??
Also, I truly believe that once you understand your cost, you will never under charge again. I've said this (what feels like) a million times!
Think about it this way...let's make a cake. Assuming $10 in ingredients & supplies and 2.5 hours baking and decorating the cake at $10/hour, that cake costs us $35, right? (I'm simplifying the math here just to make a basic example.) [$10 + (2.5 hours x $10/hour) = $35]
So lets say, our friend Jamie Smith asks us to make that cake for her for $25. What would your response be? Hopefully, something along the lines of "No, I actually can't sell you this cake for $25, but here are some other options that might fit your budget a little better." 😉
At the end of the day, knowing that the cake costs us $35 to make...does it seem fair to us, as the people making the cake, to sell it for less than what it's worth?? Nope! Not at all!!! 😡
If nothing else, what makes the most sense is for us to sell the cake for $35 plus a little extra money for our trouble, which is called "profit." That money can be used to fund our business by buying new tools, investing in classes, or hiring help.
I am saying all of this to say, that if we plan on making a real go at this sweet business ownership thing then we have to get serious about understanding our cost so that we can appropriately charge for our work.
There are tons of resources out there such as pricing classes, mobile apps or online software. So it really is all about doing the research to find the best option for you, but below I have included some recommendations for help with pricing and overall business. I hope you find them useful!