■ A fortnightly business advice column by Whakatāne accountant and business adviser Jason Lougher

I’ve tried to keep away from talking about numbers in this column, so people don’t fall asleep while reading the Beacon. But this one’s worth staying awake for.

Ask around town and you’ll hear the same story. Everyone’s busy, but not everyone’s getting ahead.

Many business owners I talk to around Whakatāne are flat out.

Long days, full books, and still not much left at the end of the month. It’s frustrating because it’s not for lack of effort.

The work’s getting done and the customers are happy, but there’s still not much to show for it.

For a lot of good operators, the problem isn’t how hard they’re working. It’s that their prices don’t reflect what it really costs to do the job.

If you’re paying someone $35 an hour and charging $60, it might sound fair. But once you add in leave, public holidays, KiwiSaver, ACC, vehicles, insurance, rent, admin time, and a bit of downtime, that $35 quickly becomes $55 to $65 an hour before there’s any profit left.

That gap is where solid local businesses quietly lose ground.

Why it’s easy to miss

When you’re busy quoting jobs, keeping customers happy, and managing staff, it’s easy to lose track of what each hour really costs.

Most small-town owners price on instinct or on what feels fair. We’re good people here. We look after our regulars and try to keep things affordable.

But, if your prices don’t actually cover your costs, that generosity ends up coming straight out of your own pocket.

And when that happens, it’s not really your pocket the money comes from. It’s your family’s. Your kids miss out, your partner carries the load, while you work late, so someone else’s family can enjoy the benefit of your time and skill.

In towns like ours, loyalty runs deep. But loyalty doesn’t pay the bills.

Over the past few years, I’ve seen businesses discount to get work, thinking they’ve done themselves a favour.

The opposite is true. They’ve discounted themselves and trained their customers to expect it.

Before long, they start to look like Briscoes with another weekend sale.

In doing so, they’ve devalued their own time and their industry. It’s not greed to charge properly. It’s survival.

What’s a fair markup?

There’s no one-size-fits-all number, but here are a few general guides that hold up across industries.

■ Trades and services need to charge roughly double the base wage to stay sustainable.

(So if you pay $35 an hour, you should charge around $70 an hour or more.)

■ Workshops or mobile teams where vehicles, tools, and admin add up often need closer to two-and-a-half times the base wage.

■ Retail and hospitality usually aim for a 60 to 70 percent gross margin, which is what’s left after direct costs but before overheads.

■ Professional services such as consultants often need two-and-a-half to three times the underlying labour cost once unbillable time and admin are factored in.

The goal isn’t to squeeze customers. It’s to make sure your pricing is honest. Honest for you, honest for them, and sustainable enough to keep your doors open.

How to check your real cost

Before you start crunching numbers, remember that not every hour you pay someone is billable. There’s always travel, quoting, paperwork, meetings, and the odd slow patch.

If someone works 40 hours a week, they might only bill for around 30 of those hours once you allow for all the extras. That means every charged hour has to cover the cost of more than one paid hour.

Here’s a simple way to check what an hour of labour really costs your business.

1. Start with the base hourly wage you pay your team member.
2. Add on-costs such as KiwiSaver, ACC, holiday pay, sick leave, and public holidays. This usually adds about 20 to 25 percent.
3. Allow for non-chargeable time. If only 75 percent of hours are billable, multiply your cost by 1.33 to cover the rest.
4. Add overheads such as vehicles, tools, admin, rent, insurance, and downtime. Add another 25 to 35 percent.
5. Add your profit margin. Even 10 to 15 percent gives you breathing room to grow and stay sustainable.

Once you’ve done that, you’ll often find your real hourly cost is higher than you thought. If the number surprises you, that’s good. It means you’re finally seeing what it takes to keep your business running without it coming out of your own pocket.

Small changes, big difference

You don’t have to overhaul your pricing overnight. Just start with small checks.

List every cost that touches a job. Review your pricing at least once a year. And, if your rate hasn’t changed in a while, it’s probably due.

Fair pricing keeps good people employed, keeps standards high, and keeps local businesses strong. If we want strong local economies, we need strong local businesses, and that starts with fair pricing.

And here’s the next challenge. How do we help the general public understand what it actually costs to run a business?

Wink wink, this column is one way. Another is knowing your true cost of labour and when questioned, transparency.

Being the cheapest in town isn’t the goal. Being sustainable is.

When your prices reflect your real costs, you’re not just protecting your business. You’re protecting your community’s future.

■ Jason Lougher is the owner of Calc Business Advisors & Chartered Accountants. Our team advise businesses throughout the Eastern Bay of Plenty — and across New Zealand. Like this article or want to chat? Feel free to send me an email: [email protected]