Pricing! It is one of the hardest things to do in business but if you get it right, then the benefits are incredible. We get asked all the time to give advice on how people should price their balloon decorations and the answer is always “well it depends!” and it really does. So in this BMTV show we are looking at providing you with the tools on how to correctly price your designs for your business and we have even created an interactive pricing tool on how to do just that! You can find it on our website here. So, without further ado, on with the show!

Mistakes and advice

Firstly, how do people price? The standard retail way of pricing is to take the EX-VAT cost, times by 2 and add the VAT on. This is a rough gauge but is by no means what you should be doing to work out what to charge your customers. Mark also says that what he sees a lot of is people copying other people’s pricing and this can be very dangerous. Another mistake he often sees is that most people don’t charge for their time. All these things can lead to a business failing as they just don’t think about the cash flow that they need.

Mark’s big tip is to spend time working out your costs correctly and be confident with those prices. If you decide to discount something for a customer then this is ok, as long as your aware of how low prices can affect your business. People are often embarrassed to make a profit but profit is key to your business succeeding. You need profit to grow and the surprising thing is that customers often won’t

Any rules of pricing?

There aren’t any simply put! Mark does have a soundbite that he heard which is – you should price something at the highest possible price that your customers feel is good value. It doesn’t help you in terms of working out costs but it can give you general idea of price.

Don’t try to attract ever customer, you should know your target market and market to them. If you try and lower your costs to sell to everyone then you are likely going to make less and less profit. People often have the misconception that if they’re busy, then they’re successful. This can be dangerous. If you’re busy but not making enough profit, you may feel like money is coming in but in reality, it is going straight out again and you aren’t making any money.

Understanding costs of your business

To correctly price your work, you need to understand some fundamental costs of your business. These are: 1. Direct Costs, 2. Overheads and 3. Profit.

1. Direct costs – 45% of total selling price

These are your costs of materials. So, what you pay for your balloons, ribbon, weights and helium. Your time to make the designs are also included in the direct costs and this is what people forget about. Even if you are just inflating a balloon and attaching it to a ribbon, you need to charge for the time that it takes to do that. Mark would recommend that you don’t charge any less than 25p a minute for your time, he even know people that charge a lot more than this and they are his most successful customers. You will need to work out the cost of your helium as well, there is a chart in the back of the Qualatex catalogue that tells you how many balloons you can get out of each helium cylinder. We would recommend that you divide the cost of your cylinder by these amounts to work out how much inflating each different size of balloon is going to cost you. Don’t copy someone elses helium prices if you don’t know what they are paying for their gas. You can also download this chart from our website.

2. Overheads – 35% of total selling price

Next is he indirect costs of your business, things like rent, rates and insurances. You don’t necessarily know what these are to begin with and have to estimate them. You will need to put aside a minimum recommended amount of 35% of the cost of every item, to cover the cost of your overheads. After you have been operating for a year or two in business, you can calculate the cost of your overheads more accurately but when you’re starting out you need to take these into account.

3. Profit – 20% of total selling price

This is key as we’ve already mentioned, and you need to allow 20% of the cost of every item you sell to go towards making a profit. Again, this is a minimum recommendation and you may need to tweak this as your business grows and you operate for a number of years.

How to work all this out

The easiest way to do this is to use a job cost form like our Interactive Pricing Tool and break down the cost of everything you require. So, let’s look at some examples:

Big Top Foil balloon tied to ribbon.

Foil Shape Balloon £3.56
Weight £0.54
Ribbon £0.01
Helium £1.32
½ minute Inflation £0.13
Direct costs £5.56
Profit & overheads £6.80 (divide £5.56 by 0.45 to get this number)
Selling price £12.36

£12.36 isn’t a very attractive number so we are going to change that to £12.99. If you were making a lot of these and sending them out quickly, then you could charge a little less for it but be aware of how many you would have to sell to make the same amount of profit. Instead, you should be looking at how you can charge more for the design, think about how you can add something to a design to create a higher perceived value.

Dancing clown.

This is an example of how adding some inexpensive, air-filled designs to a large shape can increase the selling price on an item considerably.

Direct costs £7.71
Profit and overheads £9.42
Selling price £17.13

You can actually sell this design for £19.99 so you can actually sell this for a lot more than our calculations work it out to be. This is because it is an exciting design, it’s something different that people might not have seen before. Have your designs made and out for people to see when they come into your shop, even if it costs you money to refill the designs, you are going to make that back the first time you sell one.

Classic Bouquet.

Foil x2 £2.72
Latex x3 £0.81
Weight £0.54
Ribbon x5 £0.05
Helium x5 £2.10
Hi-Float x3 £0.21
Inflation £1.25
Direct Costs £7.68
Profit & Overheads £9.39
Selling Price £17.07

We think that you could round this number up to £17.99!

So that’s a quick insight into how to price, use our Interactive Pricing Tool or a job cost form to work out your prices, don’t forget to charge for your time!

Rob

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