Pricing Products & Services- Or how to price for Fat People!

I've been running TaxAssist in Leicester for about 3 years now, and have been  thinking about how we price our services going forward. When you start a business, initially there's alot of flexibility in pricing- its the advantage a small business has- they can customise their services, to suit the client and therefore price their fee accordingly.
There comes a point where the service you offer leads to a  natural process to become more standardised, for a number of reasons.

1. You gain a clientele that can be analysed and classified, and a more standardised service can be marketed to future clients.

2. You employ staff. Initially all pricing is done by the principle of the business, but there comes a point where you want staff to deal with prospective clients, and be able to quote a fee, The only way to do this is to have a standardised fee for services. The other advantage of this is that there is no temptation to lower the price, as the staff member doesn't control the price, and therefore cant lower it -without your say so.

3. The initial customisation that you can offer, - once you grow to a certain level, becomes a constraint on growth and profitability of your business, as customisation adds costs. Standardisation should streamline processes and services and lead to greater efficiency and profitability.

3. You can offer differing levels of service according to what clients are willing to pay. Accountants commonly offer a Gold, Silver, Bronze, service. Starting with a bronze service as a minimum and Silver and Gold adding extra services and service levels.

For example if a restaurant only offers 3 types of red wine at 3 different price points its likely to sell more then if they only offered one. The idea being that a large percentage will chose the middle option as they don't want to be seen as a cheap skate, but don't want to pay the for the highest price one- the middle is the compromise choice between quality and price-its probably the one that makes the restaurant the greatest margin as well!

You see an  extreme form of pricing with companies like RyanAir - who charge a basic but then add extras, so the price you pay maybe quite different from what you thought you were going to pay. Even charging you to choose to sit together rather then a random allocation-crazy! Cinemas are also pricing this way to charge for so called "premium seats" and standard seats- it could take this further and charge a lower price for tickets on the front row as the view isn't as good or comfortable.

At the moment we offer a highly personalised service with unlimited meetings, flexibility and often don't charge for little extras requested from clients. We don't vary the level of service offered. We offer an all inclusive service that is sustainable for the near future, but as we grow this may change.

Hang on a minute I hear you say whats the title about fat people got to do this?, well how about applying pricing principles to clothes? In theory why should a garment that is XXL be priced the same as XXS, the smaller one uses less material, probably is quicker to make, takes less packaging, and maybe storage. You could therefore argue fat people should have to pay more for their clothes. Obviously its controversial, but you can see the logic behind it, and if used cleverly could be marketed as an incentive to lose weight.
Social media campaigns could be run encouraging people to show before and after pictures in the said company's clothes, free clothes to those who lose the most, etc
Think about how you price your products or services, and the levels of service you could offer, to maximise sales. Could you apply theses principles to your business?

Attention Directors - How And What To Pay Yourselves for 2014/15

Salary

If you have other income from outside the company, your monthly standing order in respect of your salary should be increased to £663 in line with the increase in the Primary Threshold for 2014/15.

If you have no other income, then the monthly salary amount should remain at £663, but include a bonus of £2,044 in March 2015- meaning a total salary of £10,000 for the year; equivalent to the personal allowance.

At £10,000 per annum, National Insurance for the company and you will be triggered. But the company’s National Insurance bill will be offset by the Employment Allowance. The Employment Allowance is a new relief available from 6^th April 2014 which can reduce an employer’s National Insurance bill by up to £2,000 each tax year. So only your employee’s National Insurance of £245.28 will be due, (which should not be payable until 19^th April 2015). This salary offers the potential for an additional £1,799 in your back pocket.

In either instance, the salary is a tax deductible expense for the company, should not trigger any PAYE and preserves your entitlement to state benefits.

The payments should occur on the last day of every month in order to correspond with the payroll records we are maintaining for you.

Or

Please ensure the date of the standing order corresponds with the date you are running your own payroll.

 Dividends

Any surplus funds can be drawn as dividends, but these can only be paid from profits after corporation tax, so you do need to have reasonable interim management accounts/ bookkeeping to hand.

Assuming you have no other taxable income other than the salary above, £28,678.50 can be paid be paid to you during 2014/15; without incurring any additional tax liability.

To summarise your company remuneration package could look something like this:

Salary	£10,000.00
Dividends	£28,678.50
Employee’s National Insurance	(£245.28)
Income after tax	£38,433.22

This remuneration package keeps you in the 20% band and ensures there is no further tax to pay. Dividends above this level will attract an extra tax charge of 25% of the net amount you receive, payable through your self assessment tax return.

Due to Real Time Information, we would again recommend that you pay your dividends with a separate standing order/ cheque etc. This should help to distinguish your dividends from your salary in the event of an enquiry from HMRC and therefore minimise the risk of say, underpayment or inaccuracy penalties.

Should you have any queries regarding the above or any other matter, please do not hesitate to contact me. Otherwise, I trust you will deal with my recommendations accordingly.

For further info regarding the Employment Allowance, see link

http://www.taxassist.co.uk/leicester/resources/show-question-and-answer/id/523