38. The Truth About Profit Margins - Are You Charging Enough?

In this episode of The KBB Unstoppable Business Owner Podcast, host Kevin D. Bannister tackles a crucial question: Are you charging enough? Many business owners fall into the trap of under pricing, believing it will attract more customers. However, this often leads to thin profit margins, cash flow struggles, and business instability. Kevin breaks down why this happens and introduces a three-step model, The Top Margin, to help you set prices that reflect your true value and ensure profitability.

What You’ll Learn in This Episode:
✅ The real consequences of underpricing your products or services
✅ Why setting prices based on competitors can be a costly mistake
✅ How to calculate your true costs, including hidden expenses
✅ The critical difference between markup and margin—and why it matters
✅ How to position your value instead of competing on price
✅ Why pricing should be an ongoing strategy, not a one-time decision
✅ Practical steps to adjust and reinforce a profitable pricing model

The KBB Unstoppable Business Owner podcast is sponsored by KBN - Kitchens & Bathrooms News THE business magazine for kitchen and bathroom professionals.

We hope you enjoyed this episode of The KBB Unstoppable Business Owner Podcast! If you found it valuable, please consider rating and reviewing our podcast on your favourite platform. Your feedback helps us improve and reach more listeners like you. Don’t forget to share this episode with your friends and colleagues to spread the word!

How to Leave a Review:

• Apple Podcasts: Scroll to the bottom of the podcast page, tap "Write a Review," select your rating, and write your feedback.
• Spotify: Tap the star icon under the podcast title on the main show page.

When you are ready here are 3 ways you can get more help/support:

1. Join our workshop on How To Become An Unstoppable Business Owner.
2. Download "The KBB Unstoppable Guide" and put an end to being overworked, low fees, and finally be paid what you’re worth, starting today…
3. Connect with me on LinkedIn - send me a message and say hi, I would love to find out more about you and what kind of support you may need. Connect here
...

Transcript

Kevin D Bannister 0:16

Hi guys. Welcome back. Today we're diving into a topic that will make or break your business, your profit margins. More specifically, we're asking, are you charging enough? In this episode, we're gonna be exploring why many business owners undervalue their offerings, the consequences of underpricing, and the practical ways to ensure you are not just making sales, but you're making profitable sales. So grab a notepad because what we're gonna discuss today might change the way you price your products or services in the future. So many business owners fall into a trap of thinking that lower prices will automatically attract more customers. The idea that being the affordable option gives you the edge in a competitive market. But here's the reality. When you price too low, you risk not just earning less per sale, but also depleting your ability to reinvest within your business. Thin profit margins mean that even if your sales numbers are high, you could be struggling to cover the basics with costs like rent, utilities, and even paying yourself a fair, appropriate wage. Now you might be wondering why this happens. Well, the truth is many business owners set their prices based on what their competitors charge without really considering their own costs. They overlook the importance of calculating every expense from those direct costs like materials and labor to those less obvious ones like the customer acquisition costs or the time spent supporting all the revisions that are done. When you miss out on hidden costs, you end up with a selling price that barely makes a dent in the overheads, and that is ultimately a recipe for financial stress. In the short term, underpricing is likely to experience cashflow issues. You find yourself constantly chasing more sales just to cover those basic expenses. And in the long term, running a razor fin margin means your business isn't built to last. You miss out on opportunities to innovate, expand, and create a safety net for those unpredictable economic downturns, such as Covid or the cost of living crisis. In fact, the research shows from the ONS that over 50% of small businesses in the UK cite cashflow pers as a major reason for failure. It's a harsh reminder that every penny counts. Now, how do we address this? I'm gonna walk you through something that I call the top margin. It is a three step model designed to help you price your products and services in a way that reflects your true value and covers your costs, and makes sure you have a top margin. This isn't just about inflating your prices, it's about understanding your numbers, ensuring that every sale contributes to that healthier bottom line. Step one, know your true costs. This step is all about being honest with your business. Finances. Too often business owners set prices based on market standards or the competitor pricing without actually taking into account the real costs of delivering that service or the product that you may be selling. To do this, right, start by listing all those costs out. First start with direct costs, such as materials, labor, production expenses. Then look at your overheads. These are gonna be things like rent, utilities, marketing, and then look at those hidden costs like the customer acquisition, the time you spent on revisions or remedials, and any after sale support that you may provide. And here's the crucial point. You must also understand the difference between a markup and a margin. Many of you may be familiar with the terms, but let's have a quick refresher. Markup is the percentage increase on your cost price to arrive at your selling price? For instance, if a product costs 50 pounds and you add a markup of 50%, the selling price becomes 75 pound. On the other hand, margin is the percentage of the selling price that is the profit. Using the same example, if your selling price is 75 and your cost is 50, then your gross profit margin on this product would be 33%. Now, if you solely focus on markup, you might inadvertently set a price that doesn't actually deliver the profit margin that you need. By calculating both, you ensure that your pricing strategy not only covers all the costs, but it also delivers a sustainable profit. Step two, this is where we wanna position your value and not the price. It's important to remember that customers don't base their purchasing decisions solely on price. They're looking for value. This means you need to communicate what makes your offering unique and why it's worth the price you are asking. Highlight the quality of your work, your expertise, and any additional benefits or guarantees that come with your product or service. When you can clearly articulate your value. Customers become more willing to invest in what you are offering, and that in turn helps you justify that higher price. Step three is where you look to test, adjust, and reinforce. Pricing isn't a set and forget decision. It's an evolving strategy that requires constant refinement. Start by testing your new pricing with a segment of your market or your customers accepting this new price without any pushback. Are you attracting the type of client who appreciates quality over your cost? Monitor your sales and your profit margins closely. If you find that you are still not hitting your desired profit targets, adjust your strategy accordingly. Remember, this is an ongoing process. Your goal here is to create a pricing model that not only covers your costs, but also builds a cushion for growth, innovation, and those unforeseen challenges. Now research from Barclays in the UK indicates that 42% of small business owners admit to undercharging often because they aren't fully aware of the costs involved in actually delivering their service or product. These figures make it clear. Getting your pricing right is not just about surviving, it's about thriving. To sum it all up. Let's revisit the core message here. Profits sustain, not just sales. You don't need to chase a high volume of sales if each sale isn't contributing to the strength of your business. By understanding your true costs, including those critical differences between markup and margin, you can set prices. Reflect your value, support your growth, and provide the stability you need. In challenging times when you shift your focus from competing on price to competing on value, you are not just offering a product or a service. You are offering a solution that stands up to the real costs of doing business. That's one of the keys to building a resilient, sustainable business that isn't just at the mercy of the markets whims or those economic downturns. Now, before we wrap up, I just want you to remember that your pricing strategy is a reflection of your business philosophy. It's a signal to your customers that you are confident in the value you provide. It also ensures that you have the resources to innovate, grow, and whether any storm that comes your way. In today's competitive market. Being proactive about your profit margins isn't just smart, it's essential. Thank you for joining me on this episode of the podcast. I wanna say a big shout out to KBN for sponsoring the podcast. They are the business magazine for Kitchen and Bathroom professionals. I hope you found this episode insightful and has brought you some value and that you are ready to take a hard look at your pricing strategies. Remember, understanding your costs and positioning your value is a foundation of a successful business. I'm Kevin d Banister, and you've been listening to the KBB Unstoppable Business Owner Podcast.