Topic 05

HERE IS THE FORMULA YOU USE TO ARRIVE AT THE EXACT PRICE TO CHARGE

If You Are A Sole Proprietor:
Price = Cost to create and run the business (expenses) + What you need to get paid.

If You Are A Business With Staff:
Price = Cost to create and run the business (expenses) + What you need to get paid + Cost to pay employees + Additional Costs of a staff + PROFIT.

Let’s break each part down, shall we?

First we’ll address: Cost to create the business (expenses).

Here are some real costs that I have listed that an average pet sitting company needs to account for when starting, running and operating the business:

  • Registered business name with the State
  • Paid for my LLC
  • pay for a URL
  • pay for a Logo
  • Contracted a lawyer to go over my Service Agreement
  • Purchased Insurance
  • Purchased Bonding
  • Joined National Organizations
  • created fliers
  • printed fliers
  • paid for countless changes and updates to my website
  • I gained relationships with vets, groomers, and other industry professionals so I could build up a networking circuit, learn, and have experts to call upon when I need
  • paid for business cards
  • Joined local networking groups (which come with coffee, lunch and drink “dates”=more $$$)
  • Purchased Power Pet Sitter
  • Posted advertisements
  • Created an employee manual and consulted with my lawyer again
  • Hired a background company
  • Hired a payroll company
  • Purchased workman’s compensation
  • wear and tear on my car
  • purchased another laptop
  • Purchased TShirts and sweatshirts for company uniforms
  • oh, and had to create the design logo for that as well
  • Purchased promotional items (Pens, Dog Bowls, treats, bandanna’s, etc)
  • Marketing pictures
  • design and create a blog (another website, another hosting and url bill)
  • Recreated my website (again)
  • Paid to recreate logos to reflect the seasons
  • paid for booths at community events
  • acquired a PO Box

Now, obviously, there are a lot of items on this list, and your start-up and ongoing costs to run your business will differ.

For example, you may not need to hire a background check or payroll company. But on the other hand, you may have items on your list that I do not have, such as getting your car wrapped to promote your business.

Whatever the case, in the attached worksheet, you’ll want to list all start-up and daily operating costs that your business requires. I gave you more than 30 real life examples from my own business. Once you start listing your costs, your list will quickly grow too.

Next we’ll address: What you need to get paid.

What you need to get paid is a combination of all things that you as a person need to make on a monthly, weekly and/or daily basis to survive. You will consider your living expenses, food expenses, entertainment, etc.

To arrive at a general figure of what your day-to-day expenses are, keep a notebook close by and record every single expense of yours for a solid week. Divide that number by 7 for a daily average and multiply that weekly figure by 4 for a monthly average.

That is the guide for arriving at price for a sole proprietor (examples and worksheet follows).

Now, we will look at the part of the equation exclusive to those with staff (ICs or Employees).

Price = Cost to create and run the business (expenses) + What you need to get paid + Cost to pay employees + Additional Costs of a staff + PROFIT.

First we’ll address: Cost to pay your staff.

Your two options, as you know, is to work with independent contractors (ICs) or hire employees.

If you manage independent contractors (ICs) you might pay them an average of 50% of the job. If you have a staff of employees, the typical ‘per employee cost’ comes out to about 40% of the job.

There is a paradigm shift when business owners bring on staff. The equation shifts and you need to factor in the other elements. Chances are you will need to raise your rates.

Business owners have to make the fundamental shift from “just me” to Business + employees + growth + me + profit.

BOTTOM LINE:
It is NOT what you THINK your services are worth. It is the PERCEIVED value of your services.

All About The Perceived Value of Your Services

*Example = Superbowl commercials.
Selling Value v Cost.

Now most of you are going to be scratching your head wondering, “OK, so if I raise my prices I am not going to land as many sales.”

No. you probably won’t.

But the ones that you do are going to be worth MORE than the ones that you were landing therefore you are working smarter, not harder. The minute you accept the fact that your volume may go down a little, but your profits will go up is the minute that you will start adding value to your business.

Here’s an example of that:

If your current average job is $15 per client and you serve 100 clients, your gross revenue = $1500

If your current average job is $20 per client, you would only need to serve 75 clients to make the same $1500 in gross revenue.

In this example, you have increased your average price by 33% and decrease your work load by 25%! Not to mention cut down on time, gas, and expenses!

Bella Is’ms
1 – Selling peace of mind, trust, and security
If that is what you are selling people, no longer is it about the cost. You are giving them an intangible item that is invaluable.

2 – BE PROFESSIONAL Ball gown or sweat suit: The way you present your company on the internet, in your marketing materials, and even on consultations will either add value to you and your brand or take away from it. It is like walking into a Black Tie Event. You will make different impressions depending on if you are in your ball gown or sweatsuit.

3 – Relationship lasts a lot longer than a business cards! The days of dropping off your business cards in offices or pet stores are over. What is really going to make your business card stand out from the others? All that is going to do is entice the pet parent to grab calls and then start calling them up to compare prices. Imagine if there were NO CARDS, except for YOUR CARD and the clerk or receptionist knew your company personally and gave a personal vouch for why they should call you. Relationships last longer than business cards!

Paying Staff:
MYTH: I have to pay a lot to get good people.
FACT: You pay a lot and end up getting workers motivated by money and not by doing good or appreciation of a job well done. How much you pay, has no impact on the type of people.

MYTH: I don’t trust anyone to hire them.
FACT: You are a control freak and the minute you learn more about the hiring process the better you will feel with it. What you really don’t trust is your ability to find the right person and train them. So what if i were to teach you how to find the perfect employees? I have done it many times. Yes, it is scary – but don’t let your fear paralyse you from moving forward. Otherwise, why have your own business? Go work for another pet sitting company!

Why would you spend all this time owning a business if it isn’t growing? You must have a clear definition on your finances and how financially fit your business actually is.

When was the last time you had vacation? Have you had a PAID VACATION? If you worked anywhere else, you would demand this. Why not build this into your own business?

It is very simple – work smarter not harder. (This appears to be the underlying theme/goal of what ‘getting your price right’ will achieve.)
Have your business WORK FOR YOU not you WORK FOR IT.

The major reason why business owners don’t know what to charge is because they are not asking themselves the most basic question -”what do I want?” Who cares about everyone else! Learn how to sell ice to Eskimos and you could charge $50 a pet sit!

Worksheet

How much YOU need to make a year ________________
How much do you want your BUSINESS to make a year ________________
TOTAL YEARLY FISCAL GOAL ________________

Take your fiscal goal from above ________________
Divide that by 12 (how much you need to make a month) ________________
Divide that again by 4 (how much you need to make a week) ________________
Divide that again by 7 (how much you need to make a day) ________________

DAY VISITS:
Looking at that daily number divide that by your:
Current price: ___________
$5 more than your current price _____________

Would you rather do more work for little money or a lot of work for a little money?

Now let’s take a look at an average pet sit:

$20 is the cost for 30 minutes.
$6 is expenses
$14 is left as a sole proprietor.

Oh but wait!!! You forgot good old Uncle Sam…
He takes about $2.80 of that if it is 20%
So now we are at about $11.20 NET

Expenses are estimated at 30%, a conservative number. They include everything: Insurance, bonding, utilities, gas, scheduling software, professional fees, national associations,
As I coach all over the country I see an average of 50 to 60% being paid to employees based on the claim that “I need to pay well to get good workers”
Let’s go back to the original $20 and take 50% off that: $10
So at our $11.20 NET minus $10, we are at $1.20 a pet sit PROFIT

Wait, but what if they are more like the 60% pay? That would be $12 a pet sit to the staff member.
So at our $11.20 NET minus the $10 we are now at -$0.80 IN THE RED! This pet sitting business owner would be PAYING $0.80 for every pet sit.

Folks, this is a conservative estimate. I see some pet sitters paying 65-75%!!! This just isn’t good business.

OH NO BUT WAIT!

We didn’t pay YOU the owner!!!! Where are you left in this equation? You should be the FIRST one to get paid! You just got staff and went from making $11.20 a pet sit to almost nothing! Clearly, $20 a pet sit was okay when you were a sole proprietor… but clearly it will not work when you are paying for staff.

When you make the transition to paying for staff you must shift your thinking to understand that it will cost you more and it isn’t in the taxes or insurance. It is with the actual labor costs!

Okay, so how do u do it?

I would encourage you to raise your rates at least 30% (from our original $20), pay only 40% at the most for labor and keep your costs under control. This means having fiscal goals and a marketing budget that you take options that come across your desk (think Yellow pages or ValPac) and match them up to your fiscal goals and marketing budget. Only then is the decision to say yes or no easy. But I digress…

Pet Sit Charge: $29
Expenses (30%): $10
Labor (40% at the most I recommend starting staff off at $9 with is 31%): $9/$11.60
Balance: $10/$7.40
Taxes ($20%): $2

New NET PROFIT: $8/$5.92 : Net Profit is what YOU MAKE as the business owner

So now, someone comes and asks you for a discount, you know how much you can actually give…. You have $8 or $5.92to play with. How much are you willing to give up?

Discounts for multiple services with staff:

NO! Not unless you have the profit to play with. You have no business having a staff charging $20 or less and giving discounts on top of that. You are loosing money.

Case and point –
There is a pet sitter who has had a business for 6 years. She went to go sell it and was only making $32,000 a year. She was paying about 60%-65% to her staff (on average) and was only really bringing in about $14,000. Not including taxes and expenses. How sad is it to bust your butt for 6 years and have nothing to show for it? That is like building a house for 6 years and barely getting the frame up and trying to sell it. At least if you were working at Starbucks, you would have health insurance paid for, stock options, and be making more than minimum wage.
Do you really love the pets that much to sacrifice your own financial future?

It is time to get real with what our business costs us.

It is time to get real to understand that the real *cost* isn’t in the taxes or insurance. It is in the amount that many business owners pull out of thin air because they want to keep up with the Jones’s. I got news for you – The Jones’ are B.R.O.K.E.

Let’s make an educated decision on how we run our businesses and not make life changing decisions based on what we feel is right.

Join the Conversation

Leave us your current thoughts below on your own pricing formula.

One Response to “Topic 05”

  1. Maripage April 22, 2014 at 4:01 pm # Reply

    How will this formula/analysis change if minimum wage is changed to $10.10 per hour for employees? Do you think this will push pet sitting rates up too high for most folks to pay?

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