How To Package Your Business

On a trip shopping in town recently, it struck me how we buy everything packaged.

The weekend Do It Ourself begins by picking it ourself, packing it ourself and pushing it ourself.

Cars are now available from supermarkets with no test drive. Video recorders and DVDs are sold in sealed boxes and only refunded if faulty. Delivery is always extra. The internet – the next ‘big thing’ in retail – works on looking, but not touching. Lap dancing (male or female) seems to be the nearest we can get to personal service.

The average salary in the United Kingdom is £23,000 a year. Don’t ask why you don’t get that – but it’s true. The average worker is gainfully employed for 2,000 hours or less. The average wage is £11 an hour – forget the governmental confidence trick of minimum wages, only burger joints and cleaners go that low.

The average call-out charge for artisans – plumbers, drain cleaners, electricians – is £65 per hour. They can buy a new DVD hard drive recorder for two hours’ work. A bottle of whisky for ten minutes effort.

The connection between all of the above ramble? Products are cheap, people are not.

Which is why it is so difficult for those in business to figure out how much they should be charging for their services. Here is a simple approach.

As we’ve said, the average hourly rate is around £11. Starting your own business is riskier than employment so pick a rate of twice the average. The minimum return for any labour you bring to your business should be £25 per hour, or around £56,000 per year.

‘They’ll never pay that. No one can ask £25 per hour for cleaning or caring.’ So don’t give a price per hour – give a price for the total job: ‘To clean this room weekly to our gold quality hygiene standard will be £25.’

You now have a target income projection for your business. Will whatever I sell or do provide an income of £25 per hour? Do I need to sell 20 burgers at £2.50 to provide that amount? How many boilers must I service to produce £25 return for my labour?

Now on top of this add an amount to cover your costs and expenses, the amount of profit you require and also some return on your capital employed.

Add all the yearly insurances, rentals, leases, stationery, vehicle expenses, repairs and advertising. Add anything you spend on running the business. Divide this by the number of items or services you anticipate selling. ‘I service 800 boilers each year, and my expenses are £8,000 – so each job carries a premium of £10.’

A business is not buying a job. A business is an investment made with your funds and in view of the risk demands a return. Be generous and stick on an extra 15 per cent return on any capital you yourself have put into the businesses. ‘I have invested £25,000 and I want 15 per cent return per year, which equals £15 per week.’

‘I will charge £25 for one hour, plus £10 fixed costs for my expenses, plus a 15 per cent return on my capital of £4 per hour means I want £39 per hour. Let’s say £40 for cash! So if it comes down to twiddling my thumbs for 60 minutes or working for just my expenses – what do I do?­’

Simple – work for just your expenses, because you are spreading the costs over a wider base.

You have now realised the first principle of ‘No Jet’ economy airlines. Fill the craft with passengers at any price. As long as the plane is full, the profit will come. Maybe only a few quid per flight – but any profit is a good profit.