Margins: are they right and how do you know what they need to be?

I suggest you go about answering this question by working backward. First, be honest with yourself and come up with the actual amount of money you need to make in order to live the lifestyle you need, not necessarily the lifestyle you want. There is a difference but satisfy your personal needs first. The success of your business will come as you add your wants by expanding and growing your business with a focus once you are confident of the right direction for your business.

Let’s consider how much you can produce in 40 hours – this answer is different for each of us. Be honest with yourself and relate your answers to your product or service that you are offering to the public. Then, start with the raw materials or basic product if you are buying it assembled and ready to sell. Next, figure your overhead. This must be within your margin that is real and realistic to your facility and area. It will vary in different parts of the country, so think this out and run it by your advisors.

Add the above segments and remember that you will have extra items on your list that need to be incorporated into your final pricing. The difference between your cost and the selling price should produce the results of the margins you need. When you have discovered this price, take time to compare it to the competitors in your field and make sure the desire for the product or service is strong enough to support additional competitors in your area.

-Stephen Capper, A-1 Awards