Deadly Overhead Costs to Consider When Setting Your Prices

deadly_overhead-001Are your prices high enough to keep you in business?

If you’re self-employed and providing services at prices anywhere near the rates you earned as an employee, you might be missing some of the deadliest hidden costs.

The obvious overhead costs include things such as rent, utilities, advertising, insurance, and office supplies; business expenses not directly related to the production of goods or services. However, there are a few costs that aren’t visible until after your venture is in play. They are easy to overlook, difficult to measure, and they’re seldom factored into the start-up financial projections.

Here are a few expenses to consider when setting your prices.

1. Audits, Fines, Penalties. Taxation and worker safety organizations can call for an audit just about any time. They can also cheerfully penalize you if you happen to be late with your remittances.

2. Downtime. As an employer, you are responsible to provide workers with everything they need to be organized, efficient and productive. Any losses or downtime come right out of your profit.

3. Political, Bureaucratic or Regulatory Changes. As a business owner, you will invest a certain amount in keeping up with changes, and then you will expend money, time and energy to adapt to those changes.

4. Disputes, Legal Battles, Allegations. Even if you choose your battles wisely, and even if you take the high road, all skirmishes will take a bite out of your overhead budget.

5. Unplanned Professional Development. Just about the time you get comfortable with a software application, somebody with move your cheese and you’ll find yourself propelled into a fresh new learning adventure. The time spent with your lawyer and accountant is necessary and valuable, and must be factored into your overhead calculations.

6. Theft of Goods, Inventory, Time. Employees might sneak the odd free meal from your restaurant or some self-serving soul might help themselves to a truckload of your products. You pay, either as a result of the losses or higher insurance premiums.

7. Non-Payment for Goods or Services. If you’re in an industry that expects you to accept payment after delivery of goods or services, you run the risk of non-payment. When that happens, you must decide whether to fight (court, collections agencies) or let it go (your loss). Either way, you pay.

8. Economic Changes and Natural Disasters. Finally, if there are any funds left in your overhead budget after all of the other possible challenges, you may be hit with any of a host of external complications. Who is ever prepared for a hurricane, a fire or a flood?

Business owners will recognize the hidden costs already mentioned, and can probably add a few of their own to the list. Optimistic newbies tend to hope these awful things won’t happen to them, but no business owner goes unscathed. Relentless low pricing will keep you broke and drive your business into the dirt.

The key to surviving in business is keeping your prices high enough to withstand any unpleasant surprises, while staying competitive enough to keep making sales.

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