Budgeting and pricing

Turnover is vanity, profit is sanity, and cash is reality

anon

One of the commonest questions asked by new Trainers on discussion forums is “How much do I charge?”. The answer is not completely straightforward and those asking the question usually get several answers back.

The simple answer is “work out all your costs, add on how much profit you want to make and then charge that”. That is what you should be doing, irrespective what others are charging. If you don’t charge enough to make a profit then there is no point considering it.

Many people make the mistake of thinking “Well, I won’t charge much as I am starting out, then I’ll raise my prices once I am established. The problems with this approach are

  • When do I become established – at what point can I raise prices? By how much?
  • What will my existing clients think if I raise prices? Will I lose them, will they lose their trust in me as a value provider?
  • Have I dragged down the average price in the area – others may reduce prices to compete with you and a vicious spiral starts.
  • If you are too cheap, people will wonder why. That could be put people off.

Working out your costs

How do you work out your costs? Generally there are two, possibly three types of cost.

1. Fixed costs. For instance if you are running a public course, this would be the cost of hiring the venue. It is also the minimum you are willing to accept as income.

2. Variable costs. These are costs that vary according to numbers – e.g. Certification and manual costs, consumables such as bandages and wipes.

3. Hidden costs. Each time that you use your equipment it becomes a little bit more worn. It only has a finite lifespan and will need replacing. If you spent £200 on a manikin and it was worse for wear after 50 courses then it has cost you £4 a course. Multiply that by the number of manikins you use per course (say 3 for a full course) then that is £12 a course you need to put aside from the profit to replace them.

Having a mixture of fixed and variable costs, therefore, makes it really hard to work out the cost of running a course. The fewer that you have on a course, the higher the cost per learner. You may budget for 12 on a course but if 6 turn up, can you still make a profit? Do you run the course anyway so as to not let people down and give you a bad reputation or do you pull the plug?

What are my costs?

Here is a suggested list – it is by no means comprehensive but will give you an idea of what to consider. You may disagree with how I have categorised some items, that is fine as it shows you are thinking about it. Some items could conceivably be in more than one category. A printer could be viewed as a fixed cost for example as its cost will be spread over many students. There is, however, a small wear and tear cost per learner.

Fixed costs

  • Venue hire
  • Your minimum income
  • Fuel
  • Advertising

Variable costs – costs that vary per learner

  • Certificates
  • First Aid manual
  • First Aid consumables – dressings, bandages, cleaning materials, manikin lungs, faceshields
  • Office consumables – paper, ink, postage, stationery

Hidden costs – could be fixed or variable but they all need to be factored in.

  • Depreciation / wear and tear
  • Holiday and sick time. You are not earning so the days that you are earning also need to cover non-earning days
  • Compliance, insurance, qualification renewal, quality assurance, CPD (Continuing Professional Development – courses and other learning to keep your skills up)
  • Dealing with queries, emails, ‘phone calls, missing certificates, misprints. Admin costs are still costs and take time, dragging down your average hourly rate.

From this, if you can estimate the number of courses you can teach per year you can calculate your cost per student and therefore how much you should be charging. Don’t forget to add 10% for contingency. Stuff breaks, gets lost / stolen. A course may not happen because of a misunderstanding, a vehicle breakdown, unexpected traffic. You need to factor all of this in. Plan for the worst and hope for the best.

example of first aid course costs
example of first aid course costs

I recommend that you compile a list of costs (as above) then feed them into a spreadsheet, along with an estimate of the number of courses you can be expected to run each year. Then you can see in black and white how much you should be charging. You can create a spreadsheet yourself or you can use my template. The full version of this spreadsheet, where you can adjust the variables yourself is available in the Premium section.

Keep an eye on costs

It is so easy to get carried away. You may end up with money in the bank, but that can be an illusion. Don’t forget some of that is needed to pay tax at some point in the future, or to replace equipment.

On the other hand, having cash can give you the freedom to leap on a special offer, or get a bulk discount. My First Aid manuals for my Emergency First Aid at Work courses currently cost £1.95 each. I like the Personalised ones as that is advertising for me. If I buy 200 books at once, I get the personalisation for free (so free advertising) and the price drops to £1.50. Win, win. Recently my supplier gave notice of an imminent price rise, so I was able to buy ahead. I took advantage of a price break at 1,000, which mean they cost me £1.15 each and I see that my new x200 price is now actually £1.70. My 1000 books, cost me £1,150 this month, whereas buying 5 lots of 200 at the new price would cost £1,700 so I have just added £550 to my bottom line.

I could only do that because I had the cash in the bank (and also confidence that I will have that many students in the next 12 months or so).

Always be looking at costs and how to drive them down. There are always deals to be have. I upgraded my manikins in 2020. Nine were bought brand new at between 10 and 12% off List after a bit of haggling. Another 3 were bought from someone that bought them new, then had a career change. He had not even opened the packaging. He advertised on a Facebook Group. I happened to be online. I made an offer there & then, paid cash and completed my collection. Everything is negotiable.

A lot of people, when they get a bit of cash in think “Ooh, I’ll buy a few bits and pieces, maybe treat myself, upgrade my ‘phone” … and suddenly that cash is gone. No chance of grabbing a bargain and they struggle with the cashflow when the tax bill arrives. As it will. Install strict financial discipline from day one and you will get into good habits that will help your business grow further down the line.

The other thing that can happen over time is that stuff accumulates. Old equipment. Items you bought that seemed a good idea at the time. Anything that still has some monetary value that you don’t use should be sold off. Not only is that cash that is tied up, you may also be paying rent to store it somewhere. Get rid of it, put the cash in your bank instead.

Finally, take a look at “Managing my clients” for more tips on becoming more profitable.

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