Finance and pricing

1. Finance and Financial Planning
The Four Pillars of Finance

2. Financials
Pricing
Sales Forecast
Profit and Loss
Cashflow Forecast

3. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right

4. Pricing methods
Pricing
methods
Cost
MarketingCompetition

5. • Cost Orientated Pricing
− Full cost pricing
−A way of including all the costs that are directly and
indirectly associated with the product or service
−Increase cost with decreasing sales!
−Sales are estimated before a price is set
−Focuses on internal costs rather than customers and
customer value
−It does however give an indication to the minimum cost
to make a profit

6. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40

7. What are the costs of running a
business?
Are they direct or indirect?

8. Overheads
(for 12 months) Staff Salaries / wages
Business Rent 0.00
Business Rates 0.00
Water Rates 0.00
Light / Heat / Power 0.00
Repairs and Renewals 0.00
Business Insurance 0.00
Travel and Vehicle
costs 0.00
Phone and Postage 0.00
Printing and
Stationery 0.00
Marketing 0.00
Professional Fees 0.00
General Expenditure 0.00
Total Overheads 0.00

9. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40

10. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
Sales forecasting next

11. Sales forecasting
• Your sales forecast should be based upon any historical sales, your
marketing strategic and your market research.
• It is a month-by-month prediction of the level of sales you expect to
achieve.
• Every year is different, so you need to consider any changing
circumstances that could significantly affect your sales
• These factors - known as the sales forecast assumptions - form the basis
of your forecast.
• You may wish to do two
1. A best guess – what you really expect
2. A worst case – your lowest estimate no matter what

12. Typical examples of assumptions:
− The market you sell into will grow by 2 per cent.
− Your market share will shrink by 2 per cent, due to the success of a competitor.
− Seasonality – how sales will change depending on the time of year
− You will spend 50 per cent less on advertising, which will reduce the number of
enquiries from potential customers.
− You are launching a range of new products. Sales will be small this year and
costs will outweigh profits, but in future years you will reap the benefits.
− You have new products that have the potential to increase sales rapidly.

13. How to forecast sales
• Use your previous experience
−If you don’t have personal experience seek those you might have,
friends, past colleagues, advisors
• Use past results as a guide
−If not your own look for past results from other similar companies
• Look for specific drivers
−E.g. if you are delivering services how many days can you actually earn
fees, ensure you account for non fee earning days Use market data
−If you are a restaurant think about how many tables you have and how
often you can turn them
• Use market data

14. Market size
Total available market
This is the entire universe that could ever
buy your product, for your niche –
anywhere
Addressable market
This is revenue represented by the
market segments that you intend to sell
and service in the time covered by your
plan available money

15. Market Size
A B C
Market
Size
Number of
customers
Average
transaction size
Number of
transactions per
customer per
year

16. Sales Forecast
MONTH SALES a SALES
b
SALES
c
TOTAL
MONTH
MONTH CUMULATIVE
MONTHLY
1
2
3
4
5
6
7
8
9
10
11
12
YEAR

17. Can you forecast your sales?

18. You should now have enough
information to complete your
Profit and Loss forecast

19. Annual
Sales Income
Sales a £0.00
Sales b £0.00
Sales c £0.00
Sales d
Total Sales Income £0.00
Direct Costs
Cost of materials £0.00
Direct wages
Subcontract charges
Packaging and carriage
Total Direct Costs £0.00
Gross Profit £0.00
% GP Margin
Overheads
Staff Salaries / wages
Business Rent 0.00
Business Rates 0.00
Water Rates 0.00
Light / Heat / Power 0.00
Repairs and Renewals 0.00
Business Insurance 0.00
Travel and Vehicle costs 0.00
Phone and Postage 0.00
Printing and Stationery 0.00
Marketing 0.00
Professional Fees 0.00
General Expenditure 0.00
Total Overheads 0.00
Net Profit / Loss £0.00
Profit and loss

20. Now that we have our costs and
our sales – what are your costs per
unit?

21. Back to pricing
Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40

22. You now have a cost orientated
price

23. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right

24. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right

25. • Competition
− At the very least you should know who your competitors are and what they charge
Immediate competitors,
e.g. Blockbusters
Technically similar
products
Secondary competitors,
eg. Lovefilm / Netflix
Different products
solving the same
problem in a different
way
Tertiary competitors e.g.
Sky Movies
Different products
solving or eliminating the
problem in a
different way

26. Can you accurately create a
competitor based price for your
new product / service?

27. What’s the difference?
Is it feasible?

28. Pricing new products or services
High
High
Low
Low
Promotion
Price
Rapid Skimming
Rapid
Penetration
Slow Skimming
Slow
Penetration
Premium products
Gradual entry
Premium products
Quick entry

29. Cashflow
−Cashflow forecasting enables you to predict peaks and troughs in your
cash balance.
−It enables you to
−see how long it will take you to make a profit
−See how long any funding you get may last (your runway)

30. Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10Month 11 Month 12
Income
Sales a
Sales b
Total Income £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Expenditure
Materials
Subcontract Charges
Packaging and Carriage
Wages
Business Rent
Business Rates
Water Rates
Light / Heat / Power
Repairs and Renewals
Business Insurance
Travel and Vehicle costs
Printing and Stationery
Marketing
Professional Fees
General Expenditure
Total Expenditure £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Monthly net inflow / outflow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Cumulative monthly flow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00

31. Financials
Pricing
Sales Forecast
Profit and Loss
Cashflow Forecast
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