The first step to flexible pricing: understanding your business costs

It might seem obvious, but before you know what to charge, you need to understand how much you’re spending on running your business. Here’s how we do it at Error.

Keep a track of your costs

There are a lot of ways of budgeting your costs and cashflow, and this article won’t go into too much detail. But in order to use Billy successfully it’s important to have as accurate a cost price as possible.

At Error, we keep track of our cashflow and costs in a spreadsheet. I’ve extracted part of that and turned it into something which can help you budget for your business

You’ll already be keeping track of your costs - maybe in a pretty loose way - so you can do your end-of-year accounts. This might be as - er - relaxed as paper receipts in a box (your poor accountant!), or something more sophisticated. We use the excellent FreeAgent for our accounting and book-keeping.

Make a list of your monthy expenses, organised by type

This is where our handy spreadsheet comes in. It’s just a list of expense types, which you can put costs against. When I was first building this for Error, I took a year’s worth of our book-keeping data and built a pivot-table in Excel to work out the monthly costs in broad categories. If you start off by using this spreadsheet you won’t have to go through that faff.

Don’t forget to account for your pay, savings for tax, and extraordinary expenses

It’s pretty easy to overlook stuff when you’re working out your business costs. We include everything, which includes:

  • paying ourselves: the primary purpose of being in business
  • savings for tax: you’ll almost certainly need to pay taxes on your income. In the UK, VAT and Corporation Tax are the big ones. Save up as you go (taking a proportion of your incoming and putting it into a savings account, or similar) and you won’t get a nasty surprise when you get the bill.
  • planning for extraordinary expenses: your primary computer just broke and you can’t do any work. Disaster! Aside from insuring it, which would be smart, it would make sense to plan to replace it in your monthly costs. We budget a bit of money each month, and buy things on credit agreements to help with cashflow.
  • freelancers: if you frequently outsource some of your work, budget for freelancers so it’s not coming out of your project return

Chat with your accountant

Your accountant is ace at this stuff. They’re bound to have some good ideas about how you should budget, and calculate your business costs based on historical data. They might even do the work for you.

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