Understanding Pricing and Profitability for Remote Small Business Teams

As a small business owner with a remote team, pricing your services can be a challenge. Setting the right price for your services can mean the difference between profitability and failure. In this episode, we'll explore the art of pricing your services and how to gauge profitability for small businesses with remote teams.

Understanding Profitability in Service Offerings for Small Businesses with Remote Teams Profitability is critical to the success of any small business. Small businesses with remote teams must understand profitability in their service offerings to ensure long-term success. To calculate profitability, small business owners should use the following formula:

Profitability = (Total Revenue - Total Expenses) / Total Revenue x 100

Small businesses with remote teams must consider all costs, including those associated with remote work, such as software subscriptions and team communication tools. By accurately calculating expenses and tracking profitability, small business owners can make informed decisions about pricing strategies and adjust them to ensure profitability.

Pricing Services: Strategies for Small Businesses with Remote Teams Small business owners with remote teams must develop a pricing strategy that takes into account the unique challenges of remote work. They should research the market and understand their target audience to determine a pricing strategy. Business owners should also consider the costs associated with remote work when setting prices, such as internet and software subscriptions.

It's important not to underprice services, as it can undervalue the work and ultimately impact the business negatively. Instead, business owners should communicate the value of services to clients using technology to maintain clear communication. Using tools such as project management and communication software can help maintain effective communication between remote teams and clients, increasing efficiency and reducing costs.

Calculating Expenses: The Importance of Understanding Business Intelligence for Small Businesses with Remote Teams Small business owners with remote teams must track expenses regularly to ensure accurate pricing and profitability. They should use business intelligence tools to analyze revenue, sales trends, and client behavior to make informed decisions about pricing and profitability. Analyzing these metrics can help business owners identify areas where expenses can be reduced or optimized.

Using Business Intelligence to Make Informed Decisions Business intelligence can help small business owners with remote teams to make informed decisions about pricing strategies and profitability. It can provide valuable insights into revenue, sales trends, and client behavior. By analyzing these metrics, small business owners can adjust their pricing strategies and improve their profitability.

Pricing your services can be a challenge, especially for small businesses with remote teams. Understanding profitability, developing pricing strategies, and calculating expenses are critical for the long-term success of any small business. By leveraging technology, such as communication and project management tools, and using business intelligence to make informed decisions, small business owners with remote teams can improve their profitability and succeed.

Tune into the latest episode of the Collab with Kiva podcast to learn more about the art of pricing your services and how to gauge profitability for small businesses with remote teams.

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Podcast Transcript:

Kiva Slade 0:01

Welcome to Collab with Kiva, where we let our inner nerd geek out on all the non sexy parts of your business. I'm talking data and operations. Neither as flashy or glamorous, but both are foundational to your business growth. I'm your host, Kiva Slade, your strategy and analytics guide here to break down what feels complicated, so it is understandable, and executional. Let's dive in. Hello, and welcome to this episode of Collab with Kiva. I'm your host, Kiva Slade, today, we are going to dive in the art of pricing your services, and how as small business owners, you can gauge profitability. So let's get started. Because I feel that pricing and things around pricing, always come up in conversations with some of my colleagues, as well as some of my clients. There's conversations I have to have with myself, my accountant around these issues when it comes to pricing, because for many of us, we are in business to have a profit, make a profit, create a profit. But sometimes when we're coming up with our pricing, we may not factor in all of the things that we need to factor in. So for many of us, we have remote teams. And it's important to understand pricing as well as profitability. And then because we have remote teams, that presents some unique challenges when it comes to pricing your services and understanding profitability. But it's key to success in the business. So, today's a little operations, but with much more business intelligence spin to it. And let's get started.

Kiva Slade 1:59

So, the first thing is understanding profitability in service offerings for small business owners with remote teams. This is very important. Understanding what profitability is, understanding what it looks like, understanding what and how in many instances and how to calculate it. So when you have your pricing and your offerings, you need to factor in certain things. Obviously, profitability as a whole is your total revenue minus total expenses, divided by total revenue, times 100. So if we were going to do that, in easy terms, your revenue was $100, you had expenses of $50. You do the math? Yeah, this is what happens when you do it on the fly. So, I was trying to make sure that I used whole numbers. And so yeah, I was right, I just wanted to make sure I was right. So you have like 50% profitability. But obviously, we're not running around with 150, easy numbers of that sort in which to calculate these things. So that's something else to obviously factor in. Spreadsheets can be your friend. Obviously, you can set up formulas and make all of these numbers really start to make sense. But again, it kind of goes back to in the beginning, when setting up pricing. I feel that in many instances, we started what we feel the price needs to be and don't really factor in what other expenses need to be factored, considered as we are looking at that price, because price is definitely close related to profitability, which is also closely related to your expenses. And we're not going to dive into like net profit margin right now, which could be operating net profit margin could be regular net profit margin, really just looking at profitability. So with that being the case, profitability is a crucial aspect of your success as a small business. And when you have remote teams, efficiency in your operations can be a deciding factor when we're looking at your long term success. So when considering expenses, you have to consider all the costs including those associated with remote work, such as Internet software subscriptions, maybe you have a content writing business, you could consider the cost of hiring writers the cost of subscriptions to writing and research tools, as well as the costs of internet. If that's something that you cover for your team. Now, you might have independent contractors. Well guess what? They're covering some of this in their pricing of their services to you. So there is definitely this understanding on both sides. Whether it's the employees side or the independent contractor, so someone is calculating these expenses here, or at least they should be. So as a business owner, if you're not factoring them in, you best believe that your contractors are factoring them into their pricing, because it impacts their profitability as well.

Kiva Slade 5:22

So when it comes time to pricing your services, when you have remote teams, you have to take into consideration also just the unique challenges of remote work, communication, timezone differences, team management, so having those challenges and communicating those challenges with clients to ensure that your services are priced appropriately. So I'm in the US. I have a team member in the US, I have another one who's not in the US. So we have to factor in what does it really take to deliver XYZ? Is it something that we can work in within our own two different time zones, and don't get me started on time zones just within the United States, but also considering what that looks like for a team member who's not within the United States. The same thing goes for those who have employees, you might have employees who are in different time zones, like I have a client and we all were chuckling last week because Asana, you can set the due date. So 5pm Eastern Time is not 5pm Mountain Time. Asana adjusts that due date, due time for the person's timezone. And so saying close a business, when you are Eastern timezone. And maybe you are client or your team member, your employee is pacific time zone, for example, close of business with shine. So things like that actually do need to be considered in your pricing, because you're going to have some timezone adjustments, in terms of when things are being worked on, when things are actually going to be completed, and what that does to the client deliverable. Also, you might need additional communication tools, project management tools, Slack, I'm sorry, not Slack, Asana, Clickup, communication tools like Slack, Voxer, WhatsApp, different things that you will have to say, these are things that we're utilizing to communicate internally. And what that looks like to actually price out, factor in those as expenses when it comes to pricing out your services.

Kiva Slade 7:41

So again, you want to take your total revenue, minus your total expenses, divided by your total revenue and multiply that times 100. But in order to do that, you really do need to have a good inventory of what your expenses are, comb through your QuickBooks, your wave your spreadsheet, or whatever it is that you're using. And even if you pay zoom, yearly, you can break that down by how much is that costing you per month? Okay, maybe that's how you have meetings with your clients, how much is that costing you per month, because that actually goes into an expense of what it is that you need to incur in order to deliver this particular service. Your team communicates in Clickup, you may pay for that once a year. Your digital marketing and you utilize Canva, okay, you got Pro and you have a yearly fee, or maybe you're paying monthly, whatever it is, those are all expenses that go into your profitability. And I'm not even talking about yet the expenses of how much your contractors cost, or how much you're paying your employees, and insurance, and all of the things so you want to capture your total revenue, and take away those total expenses. But being mindful of those expenses that you may just owe the website or something else like that, that you pay maybe once a year and you don't factor in that will impact your profitability and because your numbers aren't accurate. So that was the first thing second, though, is pricing your services. We need to talk through different different strategies. You know, when you have remote teams, you have things like market demand, you have competition, what are the demographics of your client base?

Kiva Slade 9:33

These are different things that determine your pricing strategy. Because as a small business owner, while you do have a bit more nimbleness, agility, you should really research your market and understand the value of your services and what they are to your clients. So often I hear people saying, well, how much do you charge for this? And someone will say I charge $500. So they go and charge 450 or they charge 550. But do you have the same expenses as a person who charged 500? I don't know, do you? So, and there's other times where we might calculate out what our service offering is. And let's just say your hourly rate is $100. So you say that, for the work that you're going to be doing, I'm really going to write this out. So for the work that you're going to be doing, you're going to charge $100 for your time. And your time, is, I don't know, 20 hours for that. So we're at $2,000. Correct. However, you're also going to need to, I don't know, have a team member, who you're going rate for them is $50. And they're going to work 10 hours, but you actually pay them $40 an hour. But again, you're factoring in what you are charging in your proposal. So you have that. So we're $2,500. So you're thinking about those things. And someone else comes to you and says, or you have a discovery call, and someone says that can't possibly pay $2,500 for that. And obviously, I'm trying to make this as simplistic as possible, because there's other factors that should be considered in terms of how much work it's going to be, was it really going to be 20 hours of work computer time and 10 hours of there's, again, things that you can work through. But because someone tells you they can't do 2500, you say, because you don't want to lose a client or you lose this possibility of money. You're like, oh, I can't do it for 2000. Can you really? Should you really both are questions that you should really ask yourself. So really thinking through your market, but also understanding that value that you bring.

Kiva Slade 12:10

Now the caveat for a lot of this is if you are taking on a new project that you have not had the ability to fully scope out previously, then you might take a loss or your profitability might be at a slimmer margin. Okay, and that's okay, that's a learning lesson, and you're gathering data for the next time you price a very similar project. So do not think that on every single project, I'm going to have 30% profitability margin. You may not. There might be some where it's a lot slimmer, it's 10%. And there might be others that it is healthier. It's so depends on that scope, which we've talked about recently, as well as understanding what your numbers are. So you again, you want to factor in things like your software, subscriptions, team communication, and not underprice your services in you don't want to underprice for several reasons. Obviously, one is undervaluing the work and impacting your business negatively because you're not a not for profit, you're not a non profit, not for profit, nonprofit, nonprofit, or not for profit. But that's not what you are. And let's be honest, their rules around that. But they do make money too. So the thing about it is you don't want to impact your business negatively, by constantly under charging. So one way to communicate value, obviously think through what you're using in terms of your technology. So for example, maybe you are a software development company, your project management tool attracts task and timelines and budgets, and you can communicate that progress with any issues with your clients. As other service writers, you can do the same thing. Maybe it's a monthly report to your clients, where you detailed out what work has been accomplished, what work is in progress, what hiccups or things of that sort, there have been, maybe it's weekly, you can gauge that cadence for yourself based on what you and your client are looking for. But there are ways to show and demonstrate the value of the work that you're doing for your clients. Because let's be honest, in the day to day, people forget what's been done. It's April, by the middle of the month, we have forgotten all great, wonderful things that were accomplished last week. Use, yep, your project management tool. You've tracked your tasks, you see what's now been completed. All that gets to go into a report of what's been done. So they see they see and are reminded of what you've done. Okay. So definitely look to bump up your communication with clients in be communicative with them, let them know where things are. And there's other things that you can do along that line too.

Kiva Slade 15:12

All right, but also calculating expenses is the third thing I'm going to talk about. And we've touched on this, but I want to touch on it from a business intelligence standpoint, because understanding that, as a small business owner with a remote team, like you were understanding the importance of pricing, obviously, in profitability, but these are definitely things that fall into or fall under your business intelligence umbrella. These are intelligence data points that you have available to you. So with that, you can help yourself identify areas where expenses can be reduced, and or optimized. Everyone's all the rage now, for many small businesses around different AI tools. Are there ways that you can utilize those tools to enhance, optimize some work that your team is doing that you were doing, that brings your expenses down? That's a good thing. I can also though, when you have these data points through your BI, it can provide you with insights into your revenue, like what are your sales trends? Do your clients behave in a certain way? I have one business that I've worked with, and it's like clockwork, she automatically knows that come September and October, she's super busy. Its people come back from summer vacation and they know they need to get these things done by the end of the year. So boom, they're filling up her calendar. It's clockwork, for her year upon year upon year. So she knows what that sales trend is, she knows that she can enjoy her summer as well. Because she knows that from September on, she's gonna be working. But it lets her know that that's a sales trend. That's part of her client behavior. She knows that that's coming. And also, when you take these metrics, and you add in a few others, you can start to adjust your pricing strategies to improve your profitability. So maybe you have like a social media marketing agency. So by using some business intelligence tools, you can analyze, obviously, the campaign's performance of your clients determine which campaigns are most effective, you can then use that data to adjust their strategy. Well, when you do do that, and you adjust their strategy, and that improves their return on investment with you, because they have more leads coming in their sales line, their sales pipeline is full, and they are converting more of these leads into actual booked clients, you know that it's your work, you can connect those dots from your work from social media to that end, which was more money in the bottom line.

Kiva Slade 17:55

So that's another thing to actually factor in, is understanding that from a business intelligence. I always talk about this, all of these things are connected. Your marketing data, it influences your sales, it influences your operations, if you have an onslaught of customers, you come into your pipeline. Okay, which is, let's be honest, that's, you know, we see how many there are, that's not the guarantee that all of those people are going to become clients. However, if, I don't know 10% of them become clients, do you have the capacity in which to serve them? Or does your team need to beef up in order to meet that capacity. So that's something that you have to you know, focus on, pay attention to you. And the last thing is really decide that you want to take action around profitability. It's one thing to say that you have a profitable business and that you charge, I don't know, $750 an hour for your time. That's well, great, wonderful. Okay. However, again, all of us have an opportunity to improve our pricing, which is one way to improve our profitability. So we want to set realistic pricing goals. In other words, we're not determining our pricing by what Sally is selling, Bob is selling, whomever we want to set realistic pricing goals. We want to leverage technology where possible for our remote teams in terms of collaboration and communication. We also want to track our expenses. Okay, we have to know the things that we are spending money on in order to improve our profitability. And so by improving our pricing, and improving our profit, profitability, we can obviously lead to increase revenue party over here, but also improve cash flow, which allows you to invest in the business in your team and yourself. It's important as a small business owner to take action, make those necessary adjustments for long term success. There's no hidden secret we're in, sort of in recession. It's important that you know your numbers that you understand your business intelligence, you understand your profitability, you understand that your pricing, and that you are showing that value to clients. And they see the connection between the value and the pricing. So you want to set those realistic goals for what work you can take on.

Kiva Slade 20:32

If you were listening last week, don't do what Kiva did, and try to take on too much when you couldn't handle it, because that could negatively impact your profitability here, people. So in conclusion, definitely focus on understanding the importance of profitability, what are your strategies behind your pricing for your services, knowing what your expenses are, and really using that data, which all bubbles up into business intelligence to optimize your small business, especially when you have remote team members. And again, take action, like roll up the sleeves and get to know the numbers people do not be afraid of them. Get to know your numbers, so you know how to improve your pricing strategy, as well as your profitability and track that progress regularly. If you have access to like any, Equifax, Experian, TransUnion, like they're letting you know, on a regular basis, your credit score has gone up, it's gone down, it's gone, whatever depending on what you've done. You want to track that as well. Not to the point that you're cray cray, but to the point that you're aware of what is taking place in your business, especially around its profitability. So thank you for tuning into this episode. I hope that you have found it informative and helpful. Because pricing services and understanding profitability is critical for small business success. And we really, we we all people who do what I do and have a heart for you like I do. We want you guys to be so stinking successful, and also profitable. So tune in next time and we'll be talking about something else that I'm sure relates to data operations, your money. See you then bye. Thanks for tuning in to another episode of Collab with Kiva. I'm wildly cheering you on as you go forth and execute data and operational efficiencies in your business. If you need additional support, connect with me via my website, the516collaborative.com. Your reviews on Apple are appreciated. See you next week.

Meet Kiva Slade - the Founder and CEO of The 516 Collaborative. With a unique background in high-power politics on Capitol Hill and sixteen years as a homeschooling mama, Kiva found her calling in the online business world as a trusted guide for entrepreneurs looking to build the business of their dreams.

Kiva's work began behind the scenes, orchestrating the back end of businesses and managing teams. But her inner data diva couldn't help but notice that small businesses needed help harnessing the power of data for growth. So she and her team set out to uncover and tidy up the data required to enable clients to grow their businesses confidently and easily.