![\"Kim](\"http:\/\/financenewmexico.org\/wp-content\/uploads\/2008\/04\/Kim-Blueher-WESST-Corp.jpg\")
<\/a>Kim T. Blueher, Director of Lending, WESST Corp.<\/p><\/div>\n
During economically fragile times \u2013 when consumers and businesses are holding their collective breath \u2013 survival can sometimes be found by fine-tuning key expense areas.\u00a0 In my household we are eating out less, driving our economy car instead of the more comfortable but gas-hogging SUV, and turning out the lights when we leave a room.<\/p>\n
Businesses can also benefit from examining expenses in key areas and cutting costs where possible.\u00a0They might also respond to a slow market by lowering the selling price of their products or services to spur increased sales.\u00a0But before a business owner adjusts pricing, he or she needs to be able to answer these questions \u2013 how do I know I am operating at a profit, and what are the lowest sales I can have and still break even?<\/p>\n
At WESST Corp<\/span><\/strong><\/a>., we work with many small businesses whose owners have never taken the time to truly account for all the underlying costs of getting their product or service to market.\u00a0They haven\u2019t identified their breakeven point.<\/p>\n One of my first clients when I started working at WESST in 1990 was a well-known and highly respected artist who made ceramic dishes.\u00a0She came to WESST for help because even though she was selling well at art and craft fairs, she was having trouble paying her living expenses \u2013 things like rent, car payments and even groceries.\u00a0Once I guided her through a pricing evaluation, she discovered she was only charging about $2.00 on top of the cost of her product.\u00a0More importantly, she realized she had neglected to add the time of her own labor to her costs. Most entrepreneurs are highly skilled and passionate about what they do, yet are hesitant \u2013 and sometimes downright resistant \u2013 to understanding and tracking the true costs of their business.\u00a0Many are unaware that they are actually operating at a loss.\u00a0They blame poor cash flow, which they try to finance through credit card debt and small business loans.<\/p>\n First, understand all of your costs, including things like time.\u00a0Then focus on setting the appropriate price for your product or service.\u00a0This is where things get tricky.\u00a0Pricing is both an art and a science.<\/p>\n A few variables to consider when setting price are your competitors\u2019 prices, the relative quality of your product or service, the convenience it provides, and customers\u2019 emotional buying habits.\u00a0If you set the price too high, some customers may turn away, while others may justify the expense because they feel they are getting higher quality.\u00a0Lowering the price sometimes translates into larger sales volume, but if the price is too low, the business won\u2019t be profitable.<\/p>\n Once you know your costs and your potential price, determine your breakeven point.\u00a0Only then can you adjust the price based on expected volume to achieve profitability.<\/p>\n Ultimately, almost every business owner wants to operate at a profit.\u00a0Profits can be reinvested in the business to finance growth and avoid debt.\u00a0They can be used to help build retirement plans or to accumulate a cash cushion for economically tough times or other unforeseen bumps in the road.<\/p>\n I worked with two women who wanted to open a salsa dance studio.\u00a0After performing a break-even analysis, we determined they would need to conduct six to seven well-attended classes per day just to cover their costs.\u00a0This was unrealistic and they decided to change directions.<\/p>\n It\u2019s tough out there.\u00a0Taking the time to truly understand the pricing model of your business is one of the best investments you can make.\u00a0This kind of financial savvy can help you successfully navigate the rough waters of the economy and changing markets.<\/p>\n As one client said as we were listing the fixed and variable costs associated with different business plan models, \u201cI do this for my own household; I don\u2019t know why I\u2019ve never done it for my business.\u201d<\/p>\n Download 27_Business Tools to Help You Survive the Recession PDF<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Using your business breakeven point to help determine business options during a slow economy is discussed. Continue reading
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