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Why are pricing and costing separate skills? And why do people mix them up?
Most of us don't really understand the difference between pricing and costing ... here's my explanation
On LinkedIn the other day, Hannah commented on someone else’s post about pricing. I had mentioned that pricing and costing are different skills - and people often get them mixed up. So I wrote out a whole series of comments, going through how costing is all about understanding the work that goes into delivering something for a client. And pricing is all about understanding what people will pay for it. Two separate things - approach them separately and then make sure they balance at the end.
I thought my responses were amazing (massive ego boost) so I thought I’d send them out to you fantastic people over the next few days.
In order to make the numbers easy, let's assume the following:
There are 20 working days in each month
There are 8 working hours in each day
Your business needs a minimum of £2000 per month to break even
That £2000 pays you a salary (from which you pay the rent and buy food) as well as cover your accountancy fees, your broadband, your laptop payments, your tax bill and all those other bits and pieces that a business needs money for
That means the business has a minimum cost of £2000 per month. At its most basic, that means it has a cost of £100 per day or £12.50 per hour. That cost is not going to go away, so if the business does not bring in that amount of money then you are in trouble.
Let's say you are a copywriter.
You have a standard offering - which is "I will research and write a blog post, relevant to your business, that will entice your customers so they will come through to your website and browse your products. In addition to the basic blog post I will also generate shorter versions, with images, for use on social media".
In other words, this is a done-for-you content marketing service.
You know that *on average* it takes 8 hours to research and write the blog post, then create the ancillary bits and and pieces that go with it.
However, when you're starting out with a client, they tend to take longer (as you are getting to know each other) and once you've been with a client for around six months, they take much less time. Let's say up to 16 hours for a new client, down to 4 hours for a long-term one.
Given that your company has a basic cost of £12.50 per hour, that means each blog post costs you between £50 and £200.
That, in a nutshell, is the skill of costing. What does it cost for your business to deliver that service to your clients?
In the next installment we’ll look at pricing.