Okay, so you are starting up your dream business. Or perhaps you are the manager of an existing pet care business. You get to hang with pets. It's your dream job.
Keep that dream job and business by ensuring that your services are priced to generate profit. It's okay to make a profit. In fact, you owe it to your customers to make a profit, so that you are around for the long-run and can continue to serve their needs.
Pricing directly impacts your revenue. If your revenue is too low, you'll run out of cash to pay your staff and invest in building your business.
The profit equation
It's pretty straightforward, you can calculate profit using the following equation:
Profit = Revenue(x) - Variable Costs(x) - Fixed Costs
Revenue Your revenue is the sum total of your price, times the number of services you deliver at that price. For example, let's say you collect $25 per day of daycare. You have 50 (x) dogs in for a day, so your earned revenue is $1,250.00 for the day.
Costs Your costs are the sum total of costs you incur in order to deliver the number of services (x) related to that revenue, as well as the fixed costs of having your facility open for business. Fixed costs do no vary (much), whether or not you have 10 pets or 50 pets onsite. Variable costs vary (almost) directly with how busy you are. For example, the most significant variable cost is likely hourly payroll costs.
Examples of variable costs: hourly staff payroll, food (if provided for free), cost of cleaning a kennel used last night.
Examples of fixed costs: rent/mortgage, insurance, manager's salary.
Let's say you need one staff for every 15 dogs onsite for daycare. With 50 dogs, you will need 4 staff (3 staff for the first 45 pets, and one for 46-50 pets. Your payroll costs are $18 per hour per staff, and you have them on hand for 8 hours each day.
We'll use a monthly fixed cost of $9,000 (includes rent, insurance, marketing, manager's salary), or a daily average fixed cost of $300.00 ($9,000 divided by 30 days).
Your daily profit equation might look like this:
Profit = (50*$25) - (4 staff*$18*8hours) - ($300)
Profit = $1,250 - $576 - $300
Profit = $374.00
Play with this. What happens to your profit when you raise your price by $5 per day, but you lose 5 pets per day?
Profit = (45 pets*$30) - (3 staff*$18*8hrs) - $300
Profit = $1,350 - $432 - $300
Profit = $618.00
You can see here, even when losing a few pets per day, your profit increases. Maybe now you can even afford to train and pay your staff a little more, or afford to have a better staff:pet ratio to help build your service and branding.
Play around with your profit equation and experiment with different pricing, # of pets, # of staff and wages. This can help you refine your business-model and pricing to help ensure you generate a profit.
Pricing as branding
Your dog daycare and boarding prices send a message to your prospective customers. Your prices help customers get a sense of the value of the services they are receiving. Price low, and they will have a lower impression of the value of your services. If you price high, you need appropriate service-quality to support your pricing and retain customers.
As pet business consultant Laura Laaman notes: "it’s important that your pricing matches the quality of service and care you provide" Source.
Your pricing helps your customers understand where you are at in the competitive market. Support your pricing with branding, marketing, onsite impressions and the overall customer experience. Many businesses in many industries find it is more profitable to charge more and deliver more (like a better staff:pet ratio) than to provide low-budget pricing and 'low- budget service'.
Next Steps: learn more from pet care professionals
Be sure to check out IBPSA's next seminar on 'Pricing for Profit':