Lessons

Lesson Info

Calculate Your Hard Costs

Calculating your hard costs. There are actual, there's actual expenses behind your business that need to be accounted for. Some of them are product specific, and some of them are open to the way your business runs. Your core offer needs to be able to account for both of those things. Both the expenses that get racked up because you're selling that offer, and the expenses that come along with running a business that sells your core offer. The price of any offer, whether that's your core offer, a follow-up offer, or a first step offer, must account for the cost of creation, the cost of marketing and sales, the cost of delivery, the cost of overhead, and profit. So creation, marketing and sales, delivery, overhead, and profit. Now don't worry. I'm going to break those all down for you. So let's take a closer look before we get overwhelmed. Let's talk about the cost of creation. Creating a core offer, creating your follow-up offer, creating your first step offer, creating anything takes so...

me labor, right. There's the labor to develop that offer. There might be labor involved in the design of that offer. There are tools and software that go into creating something, whether it's the technology that you need to build it, the technology that you need to run it, to host it. Maybe there's licensing involved with your core offer. Maybe you need to license content, or license graphics, or video. That all comes along, you need to pay for that as well. And then any other materials, whatever that catch-all is. What else do you need to pay for just to make the product itself? The process of creation. Labor to develop, labor to design, tools and software, licensing and materials. That's cost of creation. Cost of marketing and sales. Obviously, there's gonna be labor in marketing and selling it. All that hard work that you guys put in to writing the emails, writing the blog posts, getting people on the phone to have phone sales conversations. That's labor and you need to get paid for that. The way you get paid for it is pricing your products or services appropriately. Oftentimes there is advertising costs that you need to account for. There are tools and software that you might be using to market your business. Maybe you're paying out commissions or referral fees. Maybe you have a kick-back for people who send you a new client. Or maybe you have an affiliate marketing program behind your business and you sell sales commissions that way. Maybe you have a sales person. Maybe you're a wholesaler and you have a sales rep who gets a certain percentage of everything that they sell. And then what promotional assets do you need? That sales page that you had designed, the brochure, the catalog that you had put together. That has a cost to it as well. I'm sure there are other things I don't have on this list too, but that's at least a start. Think about all the things you need to spend money on or want to spend money on to market and sell your offer. Then there's cost of delivery. In other words, actually getting your product to your customer or delivering your service or taking care of them while they're in your program or your course. That's all product delivery. So there's going to be labor for customer support there. There's gonna be tools and software that are involved in delivery as well. So much software, right, in running a business. We need to pay for it. Maybe there's rent. Maybe you do workshops and you have to pay rent so that you can run those workshops. Or maybe it's the space you're selling from at a trade show booth. You need that to be there as well. Maybe you have physical products we should be adding, like shipping and materials and things to this list as well. That needs to be accounted for in the price of your product. You can't put it in a fancy pants box if you can't pay for the fancy pants box. (chuckles) And then overhead is simply looking at the total cost of running your business outside of those product specific expenses and making sure that there's a certain amount of everything that you sell that's going toward those overall overhead expenses. That's electricity, internet service, maybe it's an admin and finance person who doesn't work on a particular product, but works on a regular basis for your business, and you need to pay their labor as well. So that's all overhead. Then finally there's profit. Is there any left over to invest in the growth or the future of the business? You know what? You want to account for that profit, that left over as well. Now I want to stop and pause here and make a distinction between labor and profit, because this is really important. You can't grow your business if you are assuming your labor and profit are the same things. So when I say you need to account for the cost of labor for customer support, the cost of creation, the labor for creation, the cost of labor for marketing and sales, I mean I want you to give that time a dollar figure. You may be the only person doing those jobs right now, but if you're not accounting for those expenses in your prices you'll never be able to afford to hire someone to those jobs for you, which means you're always gonna be the one answering the customer complaints. You're always going to be the one helping out with the technology problems. You're always gonna be the one managing your marketing. You're always gonna be the one doing the half, you know what, graphic design on your products. You lock yourself into this I gotta do everything role when you forget to price for labor inside of the prices of your products. Profit often comes back to you as the business owner. That's the beauty of being a business owner, is sometimes you get paid just to own the business. That's part of what profit is all about too. But we also want to make sure that you're paying your income from the labor budget and not the profit budget. There may be a time when you just get paid profit, which is awesome. But that should be a time when you are not working for your business. So if you're working for your business, make sure that you're accounting for the cost of your labor. And you might be really expensive. (chuckles) So make sure you're taking that into account. Any questions about that? No, make sense? Okay, great. Here's the hard cost calculations for CoCommercial. This is what I'm thinking about when I'm thinking about numbers. So again, creation, marketing, delivery, overhead, and profit. We don't have a whole lot of creation expenses at this point. The product is created. It's not expensive to create. It's a community. However, we have a lot of expenses in every other category. Let's just bring it all up. Here we go. So for marketing we have expenses like advertising, travel, I would put in that category, because when I'm on the road generally I am marketing our business. I have my labor because I do a lot of work marketing the business. I have our marketing agency listed under here as well. And I have our email provider listed here. ConverKit is a really important part of how we market that side of the business, that core offer. Those things all go under marketing. For delivery we have the application that we use to run our community called Mighty Networks. We have our video broadcasting application called Crowdcast. We have our community managers labor there. We have our customer support person, Marty, his labor is in there. And I have some labor involved too. There's still a lot that I do in delivering that product. For overhead we have Rosie's labor, and all of our operations expenses in terms of the business as a whole. We have general overhead like electricity, internet service, and all those things I need to think about. We have our admin and finance team, the apps that we use for that, and legal. And then profit I've set a 30% profit goal so that 30% of everything that we bring in on a monthly basis either goes to me, or goes to growing the community. And I can split that up however I want. That's my prerogative as CEO. An owner. So this is what we're looking at. This is not everything but it gives you an idea of what I'm thinking about. These are the expenses. Am I able to cover all of these expenses with the number of members that we have in the community and the price that I'm choosing to charge? We actually recently went through a big pricing change where we decided to take our $59 per month members and move them into that leaders circle bracket that I told you about when we were talking about three pillar business model, and drastically reduced the price of just the membership to 14.99 a month. There was a lot of number crunching around that. There was a lot of number crunching around that, because I needed to feel confident that we could get to a point where that 14.99 a month was going to be sustainable, where it was gonna actually pay for all of these things. It doesn't right now. We're in that sort of start up phase still where we're self-funding this business, and we don't pay for all of this from that core offer. But we're able to pull in revenue from other places that allows us to do that. So I'm thinking three or four years out when I'm thinking about that pricing strategy, and where I'm actually headed with what we're gonna have to pay for, and how many people are actually going to get into the membership to make that 14.99 a month make sense. So that's the kind of thing I'm thinking about. Can I pay for this stuff? And that's another reason to come back to what we've been talking about a lot over the last couple of lessons. This is why knowing what your goals are are so incredibly important. Because if you're pricing your offers based on the business you have today, where you're doing all the labor, where you're using a mishmash of applications, there's maybe not a lot of attention around it. You use whatever was free when you started your business. That's not going to price your offers for growth, right. Because you're not accounting for where you want to be. You're accounting for where you are right now. So as you start thinking about what all do I need to pay for I want you to start thinking about where you want to be two years from now at the least, and think about the things you need to pay for then, and how you can account for that in your pricing now, and in your sales goals now. That's the pricing for growth part. People are always asking, "How do I get ahead?" or "How do I keep from always having to raise my prices "every time I want to hire somebody, "or every time I just want to make more money myself?" You start pricing based on where you want to be two years from now as opposed to where you are right now.