If you’re frustrated with your cash flow from your services business, you may be tempted to pour more sales on the problem.

Before you do, it pays to make sure that your “sales” problem isn’t really a pricing problem.

Last week, I shared the first pillar of my 3 Pillar Pricing Pframework to help you price strategically and maximize your financial success while minimizing your stress. (If you missed it, you can check it out here.)

Today, I’m sharing the second pillar. Read on!

Pricing pillar #2: Cost Considerations

Why should you care?

Blind pricing ignores your cost structure. It’s a double-edged sword.

It puts you at risk of pricing too low to generate the money you need from your business.

And it also puts you at risk of pricing too high and losing potential sales that could boost your bottom-line.

Both of these risks can result in major cash flow problems.

Aside from the business problems, a founder in this situation is often left feeling confused and frustrated as to why more sales dollars aren’t hitting their bottom line or how cash always seems to be so tight.

Many founders I’ve talked to don’t realize they’re pricing blindly.

Usually, it’s because they don’t know how to properly account for their gross margin and net profit margin.

To do this, you need to have your financial reporting set up properly.

Your chart of accounts should allow you to look at your cost of sales and operating expenses separately and not just in one big lump sum.

This will allow you to better analyze your costs.

As a result, you’ll be able to determine the price you need to charge to both cover your expenses and pay yourself what you want. This approach ensures that your pricing is grounded in reality and aligned with your business goals.

Good financial reporting and strategic pricing that incorporates your costs can transform your business.

You’ll have a clearer understanding of your business's financial health.

And you can make informed decisions about pricing, promotions, and product offerings.

The likely result is increased profits, better cash flow, and reduced stress and anxiety for you as a business owner.

Real world example

I recently worked with the founder of a marketing agency with $5M in revenue who wants to double their profit margin.

When I looked under the hood, I saw that they lacked good financial reporting - one indicator was that their cost of sales and operating costs were not broken out separately.

So, we set them up with clearer financial reporting. Then, we compared their current gross margins and net profit margins to similar companies using benchmarking data (obtained via our ProfitCents subscription).

Through this analysis we discovered that my client’s margins were well below industry averages.

While there were some areas for spending cuts and reallocations, there was also a big opportunity to improve pricing.

Armed with knowledge about their current margins and industry benchmark margins, my client is in a much better position to price their services at a higher level that better supports their business’s growth and operations, as well as their desired lifestyle and personal goals.

Ask yourself

What else could you do in your business if you had confidence that your pricing supported your business needs and your personal dreams?

What’s next?

Pricing that considers your costs is an important step in producing profitable sales that set you and your business up for sustained financial success.

But, there’s one more factor you should consider.

Next week, I’ll share the remaining essential pillar to my 3 Pillar Pricing Pframework (again with the alliteration!🙂)

You won’t want to miss it.

That's all for this week.

See you next Saturday.

In the meantime, if you’re looking for more, there’s a couple ways I can help you:

1. Watch my free training on the 5 steps you'll need to take to get the financial results you want from your service business and feel less overwhelmed. Free training here.

2. I can help you get clear on where your business is today and create the strategic financial roadmap you'll need to discover your desired tomorrow. Book a free strategy session here.