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Section2PricingItRight

In section two your goal is to ensure that your services are priced right for your businessmission,marketandprofitability.Thekeyelementsofyourpricingsystemshouldinclude:

1. Clearly Defined Position – pricing shouldalign with your company mission, your nichemarket,andensureprofitabilitygoalsaremet

2. Pricing Analysis – analyze your servicepricingusingthethreepricingmodelsoutlined

3. AnnualPriceAdjustmentPlan–establishthesystemyouwilluseannuallytoreviewandadjustservicepricing

ClearlyDefinedPosition

At the time you started your pet care business youmade a decision on your target market and pricingstrategy. This decision should be a reflection of yourbusinessmission.Nowisagoodtimetostepbackandreviewyourwrittenbusinessmission(putthisinwritingnow,ifyouhavenotdonesopreviously).

PricingAnalysisForservicesthatgeneratethemajorityofyourrevenueyou should analyze pricing using all three modelsdescribed inthisstep. Eachapproachespricingfromadifferentperspective andare important inputs to yourfinalpricingdecisions.Keep inmind thatmost small businesses underchargefor the services provided. The goal of a soundpricingstrategy istoprovideyourbusinesswithanacceptableprofit level and have your clients value that they gettheirmoney’s worth. In reality, this is a very difficultgoaltobalance.Thethreepricingmodelsthatprovideinputtoyourfinaldecisionare:

1. Actualcostplusprofitmargin2. Valuepricing(benefitversusprice)3. Competitorpricing

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Knowing your actual costs of providing each typeof service offered is critical to remaining inbusiness. Manytimesonly thedirectcostofprovidingtheservice (e.g., laborandsupplies) isincludedinthiscalculation.However,yourbusinesshasotherfixedexpensesthatmustbepaid.To remain in business and thrive your revenue must pay for these costs too (e.g., rent ormortgagepayment,utilities,receptionist/cleaningstaff,insurance,etc.).

What level of profit margin do youexpectfromeachserviceprovided?Thisisakeynumbertodefinesoyouhaveabenchmark to use in making decisionson each revenue stream in yourbusiness. This is also a key number tothe final amount you are paid as thebusinessowner.

Theproblemwithcostpluspricingisthatitdoesnotconsiderwhataclientiswillingtopayorwhatcompetitorscharge.Theseareournexttwomodelsorinputstothefinalpricingdecision.Valuepricingconsiderswhataserviceisworthtoourclients.Thisisanareawheremanysmallbusinessownersunderestimate.Obviously,yourclientsarewillingtopayyourcurrentprices.NowIwantyoutothinkabouthowmanytimesyouhavebeentoldyourratesaretoohighbypotentialcustomers.If never, then you should feel good about making anincreaseasyouareprobablypricedtoolow.Another aspect of value pricing is to consider whatunique “value-added” is in your services versus thecompetition; what sets your business apart (e.g., aunique service, your background and training, staffed24/7,investmentinstafftrainingprogram,etc.).Competitor pricing analysis is how most businessesestablishedpricinginitially.Theproblemwiththismodelisitisanoutwardview.

It does not consider the cost structure of your businessmodel thatcouldvarysignificantlyfromyourcompetitor.Whenwasthelasttimeyou checked pricing of your competitor? They could easily havechangedratessinceyourinitialanalysis.

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Stepsforeachmodelareoutlinedbelow:1. CostPlusProfitMargin

a. Determineyourcoststoprovidetheservice(Usemostrecentactualdata;priorfiscalyear)

i. Total labor (wagesplus taxesandbenefits); ifyour labor isnotbrokendown by service then estimate using percentage of time staff spentworking in each revenue area. Split their total wage into portionsallocated toeach service (e.g,40%boardingand60%daycare). Don’tworry if you don’t have actual numbers now, it is better to use anestimateandcompletetheexercisethantonotdoit.(Note:Youmustdecidewhethertoincludeyourownerbasewageinthecalculation. Itcanbedoneaspartoflaborcostorinitemd,profitrequired).

ii. Total supply costs required to provide service. Include supplies youpurchase specifically for that service (e.g., toys, bedding, food, treats,etc).

iii. Allocateaportionofremainingcoststoeachservicearea(This is totalofalltheotherexpensesfromyourProfit&Lossstatementnotincludedin aor b above; don’t include laboror supply costs for other revenuestreams). One allocation method is to calculate how much squarefootage is required in your building to provide each service (e.g., 45%daycare, 35%boarding, 20%grooming). Use this spacepercentage toallocate the shared general costs required to operate your business.Don’tspendalotoftimehere,justlistyourrevenuestreamsandassignanallocationpercentagethatmakessensetoyou.

b. Determinehowmanyunitsoftheserviceyouprovidedinpriorfiscalyear.Thisshouldbetotalnumberofdaycaredaysordognights,etc.Forthiscalculationitisimportanttoincludeeachdoginyourcenterregardlessofwhattheypaidfortheservice.Youincurredcoststotakecareofthem.Yourpointofsalesystemshouldprovidethisinformation

c. Yourcosttoprovidetheserviceisamountinitemadividedbyb.d. Determinetheamountofprofityoudesireinadditiontocost.Thiscouldrange

from 10-50% depending on the type of service you are analyzing. Play withpercentages using the total profit percentage from the prior fiscal year as astarting point. To determine the profit per dog for this calculation you willdivideyourprofitearnedfortheyearbythetotalnumberofpetsserved.

e. Yourfinalcostplusprofitistotalofitemcplusitemd.2. ValuePricing

a. Startwithyourcurrentratepaidbymajorityofyourclientsb. Increaseby20%ifyouhaveneverhadanyonetellyouratesaretoohighc. Increaseby10%ifyouhadlessthan10peopleinprioryearquestionyourratesd. Increaseby5%ifeachmonthyouhavesomeonequestioningyourrates

3. CompetitorPricing

a. Reviewyourcompetitorlistingandupdatefornewfacilitiesb. Findouttheircurrentpricingfortheservicesyouareanalyzing.c. Itcanbehelpfultocreateaservicefeaturecharttoensureyouarecomparing

likeservices. Somemodelsareall-inclusiveandotherspricealacarte,sokeepthisinmindasyoucollectdata.

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4. Analyze

a. Yourcurrentrate,comparedto:b. Costfromitem1,comparedto:c. Valuefromitem2,comparedto:d. Competitorfromitem3.e. Decideonbestrateforyourbusiness

Ataminimumyourratesmustcoveryourcostsoryouwon’tstay inbusiness long-term. Thegoalistocovercostsplusprovideyourtargetedprofitpercentage.Nextwewill lookatbreak-evenandloss leadingpricingstrategies. Ifyouranalysis indicatesalargeprice increase iswarrantedreadthesectiononAnnualPlanningbelowprior to finalizingyourpricingadjustmentdecision.

Break-even&LossLeaderPricingStrategies

Bothofthesestrategieshavevalueinbusiness,thekeyistohaveavalidreasonforofferingaserviceatbreak-even or a loss. Inmost instances these strategies areused to gain market share and would be from asecondaryrevenuesourceinyourbusiness.Examplesinthepetindustrycouldbecatlodgingornailtrims.

You may want to keep yourclients from using anotherfacilityfortheseservicessoyouoffer them at break-even or asmall loss. There isa“lifetime”valueofacustomertoyouthatcanjustifythesestrategies.

Anothertimetousethisstrategyiswhenyouintroduceanewserviceoffering;youwantcurrentclientstotryitatareducedrate,loveitandthenbewillingtopayfullpricelater.Mostimportantlyyoumustknowwhenanyservice that you provide is operating at break-even orloss-leading pricing. They should be a strategy tool for your business and not one of yourprimaryrevenuestreams.

DiscountsProvidingdiscountsinthepetindustryiscommonandtypicalformultiplepets.Makesurethatthediscountsofferedmakesenseforyourbusiness.Multiplepetdiscountsforlodgingwhensharingan

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enclosure makes more sense than dog daycare. Indaycare, the seconddog is takingupa spot thatyoucouldchargefullprice.Alsomakesurethatthediscountisnotsodeepastototally eliminate your profit. Later in thisworkbookwewill lookmorecloselyatdiscounts,butsincetheyareanimportantpartofpricingyoushouldincludeaninitialreviewnow.

AnnualPlan

Agoalof thisworkbook is to formalizeyour financialsystem with key action steps you’ll take each year.One of the best pieces of advice I received in thisindustry was to raise my rates every year. Clientswould expect it and by making this a routine itremovedangstthat isoftenfeltbyownersthatneedtoraiserates.Asmallregularincreaseisofteneasilyacceptedbyclientsratherthanalargerincreaseevery2-3years.

All rates do not need to increase every year, but you should plan for some rates to increaseannually. Keep inmind your employees expect annual increases andmany of your businessexpenses increaseeachyear. If youdon’t raise rates, thenyouwill bepaying for these fromyourprofits,effectivelytakingapay-cuteachyear.Includethefollowingaspartofyourplanning:

1. Listallservicesonaspreadsheet,currentpriceand date you set that rate. This worksheetprovidesahistoricalrecordinoneplaceoflastrateincreaseandamountofincreaseforeachserviceyouprovide.Thisisagreattooltopullout each year as you go through your pricingactionstep.

2. Analyzeyourpricingasoutlinedinactionstep2 to decide if a primary service rate needsadjustment.

a. Ifadjustingaprimaryservicerateyoumaydecidetokeepratesthesameonsecondaryservices.

b. If no adjustment is requiredon your primary service rates you should adjustseveralofyoursecondaryrates.

3. Planthetimingofyourrateadjustmentconsideringthefollowing:a. When it may be best received by your clients (January increases might be

noticedmoreastheypayofftheirholidayshoppingbills).b. Priortoapeakperiodcouldmaximizethebenefittoyourrevenue.c. Right after a peak period will boost revenues helping your bottom line in a

slowerperiod.

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4. Announcetherateadjustmenttoclientsandgivethemanopportunitytoprepayatoldrates.Thiswasalwayswell-receivedbyclientsandcangiveyouacashflowboost.

Reflect

A pattern I notice with many pet business owners is not properly valuing the services weprovide. We lovepets,areexcited tomake thisourcareerandyetwedonotcharge for thelevelofcareweprovide.Wearealsoveryquicktodiscountourservicesaswewanttohelpormay feel guilty for charging full price. Once you understand your costs by service type you

shouldgainconfidenceinstandingbyyourpublishedrate sheet. Discountwhere it is awin/win for yourclientandyourbusiness.Wemust be confident and clear in the level of careweprovidefirsttoourselvesandnexttoourclients.Asyou feelwithinyouportrayexternally. Whenwedoubt our value we keep rates low and offer deepdiscounts.Youworkhardatyourbusinessandstriveto provide excellent pet care so you deserve to bepaid for it. Once you can explain your services andresultingrateswithconfidenceyouwillattractclientsthatexpectandarewillingtopayforit.

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Section2:PricingItRight

Besuretosetatargetdateforthecompletionofallactionitemsand addtotheimplementationchecklist.

Due

Date

Action

StepsDescription Notes

1

Clearlydefineyourbusinessmission

andpricingstrategy

2

Performpricinganalysisforyourprimaryservicerevenuestreamsusingall3models

3

Performcostmodelanalysisonsecondaryservicerevenuestreams

4

Listdiscountsofferedand

analyzeimpacttoyourprofit

5

Createyourannualplanforanalyzingandadjusting

pricing

6

Reflectonthevalueyouprovideclientsthroughyourbusiness

AdditionalNotes: