When setting your prices, and also when evaluating worker pay increases, you should take into account what your costs per service are. One mistake that many holistic business owners make is setting service prices based only on the “going rate.” Although knowing what others in your area charge is useful, it doesn’t take your business overhead into account. The “going rate,” could actually cause you to be losing money! Your true profitability all depends on your what your expenses are.
Your cost per service consists of 2 main expense categories:
1. Calculating Labor Expense.
+Service provider wages (include owner/operator wages.)
+Employment taxes (about 8% of the wages per service)
+Workers compensation (break it down as a rough hourly expense)
+Employee benefits (break it down as a rough hourly expense)
=Total labor costs related to that service
2. Calculating Supply/Equipment Expense.
+Treatment products such as skincare, haircare, massage oil, etc.
+Treatment supplies such as gloves, acupuncture needles, etc.
+Equiptment with a cost per use such as microderm, lasers, etc.
+Laundry, extra cleaning wages or supplies, etc.
=Total supply costs related to that service
Add up items 1 and 2 and you’ve got your “Cost per Service.”
Technically, your cost per service amount includes just your “variable expenses.” The items we included vary, depending on what each service involves. Some services are more profitable than others! Of course you want to book more of the profitable ones, and consider raising your prices on the less profitable ones.
It’s important to remember however that we haven’t calculated your “fixed expenses” yet.
Your service fees need to cover all of your variable costs per treatment, but also your rent, insurance, marketing, cleaning, utilities, bookkeeping, managment salaries, non-practitioner wages, accounting, coaching, training, debt-repayment, profits, etc. There is no “average” number for what all of that will cost you on a per-service basis because your overhead is unique. It will probably be at least as much as your cost per service, and most likely more.
When you add your Cost per Service variable expenses, plus your fixed expenses, then you’ll know if your services are priced high enough to cover your overhead.
Profitability is when you can cover all of your overhead, pay yourself adequately, build up reserves for future growth, and make a profit on your investment. Price your services accordingly, and you’ll get there!
Jaya Savannah - Chief Inspiration Officer. Strategy Coach for Holistic Businesses. Trainer, speaker, and writer. Spiritually aware, yet street smart. Elephant lover.