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PRICE IT RIGHT!
©Copyright 2020 by Peniel Chris-Enwenwen

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any
form or by any means, including photocopying, recording, or other electronic or mechanical
methods, without the prior written permission of the publisher.

It is expressly prohibited for groups or individuals to use any concept or methodology presented in
this book in any training or unauthorized third party presentations, consultations, products or
services without a license from the author. By purchasing this book, you agree to comply with these
stipulations.

The Food Business Clinic Framework, other trademarks and services found herein are the intellectual
property of Peniel Chris-Enwenwen.

For further information or permission, address your request to:

chefpenielng@gmail.com

Connect with the author via:

www.instagram.com/chefpeniel
chefpenielng@gmail.com

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 DEDICATION
To God Almighty for giving me endless ideas,
and the strength to push through each day.

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 CONTENTS

CHAPTER ONE: COSTING

CHAPTER TWO: PRICING STRATEGIES

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MY LETTER TO YOU!

Dear Entrepreneur,

This may be the best 1 hour you have ever spent reading a book. Well, it may be more than
an hour.

You probably purchased this book because you desire business growth. I’m also guessing you
are tired of running around in circles and want to have a profitable business. It is no news
that a business that is not profitable will eventually shut down.

I know how it hurts to see a business that you have invested so much money, time and
energy burn to the ground because you are not making any profits. I know this because, this
is my story.

I started a restaurant in 2017 and by 2019; we were already shutting the doors because I
could no longer pay the bills and keep it afloat. I was broke and in debts. My daily expenses
overwhelmed my daily sales, this threw me into crazy debts and eventually I was forced to
shut it down.

I watched everything I spent about $25,000 building, burn to the ground. I had made too
many mistakes and I paid the price.

This story is similar to a lot of business owners out there. You open a Hair Salon,
Supermarket, Event Planning business, you’re a Decorator, Makeup Artist, Baker, Jewellery
store owner, Caterer, Gym instructor, etc., and you’re struggling with sales and profits. One
of the reasons is wrong costing and pricing of your products and services.

Not costing and pricing my products and services right was one of the many reasons why I
shut down my restaurant.

I also understand that running a business in Nigeria can be very draining. Some days I
wanted to just give up and close my business because I felt stuck. I was making sales but I
wasn’t seeing my money. Everything was a mess.

But you see, rather than give in to the pressures of shutting down and looking like a
complete failure; i took my mistakes and turned them into valuable lessons. These lessons I
have also shared in my first book ‘How to Start an Event Catering Business’.

This book ‘Price it Right’ will change everything you thought you knew about costing and
pricing your products and services.

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Costing and Pricing has been a major issue for a lot of entrepreneurs. This is the reason why
so many business owners are not making profits. It is almost as if you are living from hand to
mouth on a daily basis; that is no way to run a business.

Every other day, I receive phone calls, emails and text messages from food business owners
and even general entrepreneurs on how to cost and price their goods and services. I
conquered this singular problem by applying some strategies I had learned and developed
over time.

These strategies have been used by different big brands out there and have been proven to
be useful. I tried them with my business and in the last 8 months, our sales have gotten an
unbelievable climb in 7figures.

In this book, i have pointed out the benefits of costing and the different pricing strategies for
business growth. Some of these strategies I have written out have been tried and tested by
my business and I’m currently enjoying the results.

If you have figured out your costing and pricing strategies, this book highlights the benefits
and exposes you to newer strategies you may have never heard of.

Before you read this book, I will like you to crush all your mind-set blocks. Tell yourself that
you can do this and you will do this. Cast aside every fear and doubt.

THIS BOOK IS GOLD. The information I have put down here is priceless. If you have already
shut down your business, that’s ok. Sometimes you have to hit the ground to jump higher.

So, my dear business owner, I want you to know that, if you commit and put what you read
in this book to good practice, I have confidence that your business will rise to the top.

I pray that this book changes your life and gives you the clarity you seek.

Your best days are here. Let’s do this.

Love & Light,

Chef P!

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CHAPTER ONE

COSTING

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 WHAT IS COSTING?

Costing is a process that a lot of entrepreneurs struggle with. When you understand how to
cost your products or services, you begin to understand how your figures work and hence,
increase your profits.

In definition, Cost is the monetary value that has been spent by a company or the expense
incurred in order to produce something.

The cost of producing a product has a direct impact on both the price of the product and the
profit earned from its sale.

Different businesses have unique techniques for costing their products and services. In this
chapter, I will share a general costing formula and also share costing formulas for specific
businesses.

BENEFITS OF COSTING

Without knowing how to cost your products or services, it may be difficult to set actual
prices which may lead to loss or reduced profits. Costing has a lot of benefits some of which
are:

1. Costing helps to determine the cost of each product or services.

2. Costing helps a business owner to determine the cost incurred during each operation, to
keep control over workers’ wages.

3. Knowing your cost informs you on how to ascertain the selling price of your products.

4. Costing supplies information for detection of wastages.

5. Costing helps in reducing the total cost of manufacturing in the long run.

6. Costing guides you in effecting changes, when faced with high costs.

7. Costing helps in formulating the policies for charging the prices of the products.

8. Costing guides the management in decision making.

9. Costing helps in preparation of estimate for submitting in tenders or quotations.

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10. Costing guides you to compare the actual cost with the estimated cost of the
component.

11. Costing when correctly applied saves your business from recording a
loss.

HOW TO DETERMINE COST OF PRODUCTS

Knowing your cost of products helps you determine your selling price and profit margin.

Before we determine the product cost, let us define some costing terms that will help you
understand further.

PRODUCT COST: Product cost refers to all those costs which are incurred by the company in
order to create the product of the company or deliver the services to the customers and the
same is shown in the financial statement of the company for the period in which they
become the part of the cost of the goods that are sold by the company.

Product costs may also include those incurred as part of the delivery of a service to a
customer.

TYPES OF PRODUCT COST

DIRECT MATERIAL COST: Direct materials are those raw materials that can easily be
measured and quantified. This is mainly for people who are into production.

DIRECT LABOUR COST: Direct labour cost includes, salaries, wages, benefits that are being
paid to these labour forces against their services.

PRODUCTION OR FACTORY OVER HEADS: The indirect expenses related to manufacturing a

finished product that cannot be directly traced are referred to as the factory or production
overheads such as utility bills, rent, equipment, etc.

In other words, overheads are that cost that is neither direct material nor direct labour. That
is why overheads are referred to as an indirect cost that includes indirect labour and
material costs.

HOW TO CALCULATE PRODUCT COST

Product Cost Formula = Direct Labour + Cost of Material + Overhead cost

Do you understand what you just read? Let me break it down

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Product Cost Formula = Your Labour + All your ingredients or materials used + Factory
Overheads/Bills

Having a breakdown of all the labour, cost of materials and bills incurred by your factory or
shop and summing them up will help you determine your cost of production.

HOW TO CALCULATE COST OF FOOD TAKE-OUT PACKS

A lot of food vendors start off with selling food packs also known as Take-Out or Take Away.
If you go to social media, you will almost see a new food vendor spring up daily selling food
packs. This makes the business very competitive as everyone is striving to keep their prices
competitive.

The Mistake a lot of food vendors make is fixing their prices based on what their competitors
are selling without actually understanding the cost of making their own meal forgetting that
every vendors location is unique and cost of production my differ. But guess what? This is
actually a pricing strategy you will encounter later in this book.

Let us look at a case study to calculate the cost of making a packed meal.

FORMULA FOR DETERMINING UNIT COST OF TAKE-OUT FOOD PACKS

Unit cost = Food cost + Labour cost + Overhead costs divided by the No. of food packs

CASE STUDY 1

Kate runs an online restaurant. She has been contracted by a client via her Instagram page
to deliver 30 packs of Jollof rice, chicken and fried plantain for an office birthday party.

Let’s help Kate calculate her cost of production and determine a selling price.

STEP 1: Prepare a list of all the ingredients you need with the exact quantities required for
the order. This will determine your unit cost and total cost.

INGREDIENTS QUANTITY UNIT COST TOTAL COST NOTES

(NGN) (NGN)
Rice 25 Cups/5kg 105/cup 2,625 A bag of rice is 50kg =

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 250cups
(This is about a full custard
bucket + 5 cups)
Tin Tomato 1.1kg 700/tin 700 1kg is half of the large pot
tomato paste
Shombo (red chilli pepper) - 500 500 500 is a custard bucket
divided into 2 parts
Habanero pepper (fresh - 200 200 Remember the food is for
pepper/Ata Rodo) kids so we have to keep the
pepper low. So the cost was
estimated.
Onion - 300 300 N300 is an estimated cost
Ginger 0.5kg 300/kg 150
Garlic - 200 200
Vegetable oil 5litres 3,500 3,500
Seasonings/Spices - 500 500 A mix of different spices
(Stock cubes, spices, salt, and seasonings
curry, thyme,etc
Chicken 0.5kg 11,000/kg 5,500
Ripe Plantain - 1000 1000 6 fingers of plantain is
usually sold at N500
FOOD SUB 15,175
TOTAL
N0. OF 30
PORTIONS
COST PER 505.8 This is the total food cost to
PACK= produce a meal

STEP 2: Determine the overhead cost by calculating food packs, utilities and other logistics
required.

ITEM QUANTITY UNIT COST TOTAL COST NOTES

(NGN) (NGN)
Disposable spoons 30 5 150 A pack of 50 high quality
spoons is N250
Takeaway plates 30 50 1500
Toothpicks/serviettes 1 120 120 1 toothpick and 1 small
pack of serviette
Gas 6.25kg 360/kg 2250
Fuel/transport - 2000 2000

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Rubber band /stickers 30/ 1550 1550 A small packet of rubber
80 bands is N50
Stickers are printed at N50
each
Delivery Cost - - This depends if you are
Based on using a logistics company.
logistics Remember to include it if
company’s you will be delivering by
charges yourself.

TOTAL 5,570 This is the total Overhead

OVERHEADS cost to produce this meal

NOTE: the prices quoted for ingredients do not reflect the current prices of things in the
market. They were mostly used as a guide for teaching purposes.

STEP 3: Determine the total cost price of the food by summing up food cost and overhead
cost and dividing by the no of portions.

COST OF FOOD: 15,175

OVERHEAD COST: 5,570

TOTAL COST OF FOOD = cost of food + cost of overheads ÷ no. of portions

= 15,475 + 4,370 = 20,745 ÷ 30

Cost per pack = N691.5

STEP 4: Calculate a selling price. Determine your sales.

We will discuss two method of determining a selling price.

1. Percentage Mark up: This method is used by a lot of SMEs to determine the selling
price of their meals. In this method, after you have successfully calculated your cost
price, you can add a desired amount to create a selling price. This is usually expressed
in percentage to get an actual unit price.

Formula for calculating percentage mark-up = (percentage % mark-up multiplied by the cost
price of food pack) + cost price of food pack.

I always recommend a 100% mark-up which still leaves room for some bit of negotiations.
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So, calculating with a 100% mark-up:

(100% x 691.5) + 691.5 = N1,383 (which can be rounded up to N1400 per food pack)

A 100% mark-up here means that you are making a 100% profit unless you agree to a price
reduction with the client.

Based on your location and other factors surrounding you, you can also decide to calculate
based on a 50%, 60% or 80% mark-up.

2. Food Cost Percentage

NOTE that ideally, and by the food business standards, your food cost percentage should be
between 28% - 45%. These figures are not fixed and are influenced by other costs such as
labour, logistics, overheads and target profit.

This is not a very ideal formula for start-ups as it makes your selling price really high and not
competitive.

Most highbrow restaurants and hotels use this formula

Formula for food cost percentage = (food cost /food cost percentage)

Working with 30% food cost percentage,

505.8 ÷ 0.30= N1,686

Using the Food Cost Percentage calculation, the selling price will be N1,686 per pack of food.

SOME IMPORTANT WORDS TO NOTE IN FOOD COSTING

1. FOOD COST: This is the sum of the complete ingredients only, used for making a
particular menu, product or service. Food cost doesn’t include logistics, labour,
utilities and other extra things

2. OVER HEAD COST: This is the total cost of others such as rent, utility bills, rental cost,
transportation, etc.

3. LABOUR COST: This covers everything related staff salaries, rewards, benefits,
welfare, etc. This is also applicable to ad hoc staff.

4. COST PRICE: This is food cost + overhead cost +labour cost.

5. SELLING PRICE: This is (food cost + labour cost +overhead cost) +profit. This is the
final price you sell you food, products or service after determining your cost. Your
selling price should include all costs plus the profit.

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 6. FOOD COST PERCENTAGE: This is food cost divided by your selling price, multiplied
by 100%.

7. PROFIT: This is the income remaining after total cost and expenses have been
deducted from total revenue/sales. This is also called Net Income.

8.

SOME FACTS ABOUT FOOD COSTING

 Knowing your food cost influences your selling prices and leaves you with some
profit.

 There is no limit to the mark up percentage. If you set your mark-up higher, your
profit will definitely be higher.

 Using the cost percentage method makes your price margin higher; you may want to
apply a pricing strategy that works for you based on your target market and clientele.

 Adopting a pricing strategy from your competition without knowing the cost might
make you run at a loss.

 Always calculate your cost before you give out a quote or respond to an enquiry
concerning purchase.

 Remember that, prices of ingredients and overall running costs are bound to change
in some seasons and due to economic challenges. Always calculate your cost before
you give out a quote. It helps you adjust accordingly.

HOW TO REDUCE HIGH FOOD COST AND WASTE

Food waste as well as high food cost is a problem for most food business owners especially
the start-ups. There are several ways you can reduce your food cost.

Keeping your food cost low can boost your revenue and increase your profit.

1. Shop in bulk: Items bought in bulk tend to be cheaper because it is usually sold at
wholesale prices and this will reduce your cost greatly.

2. Find the cheapest sources to purchase from: While it is common practice to

maintain supplier relationships (Should the need for credit purchase arise) it is good
to find alternate sources and look for the cheapest to further reduce cost.

3. Cut down on unnecessary expenses: If you notice that some particular ingredients
always stay for so long and never leave the pantry or just barely do, it may be time to
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 revisit your menu and remove whatever dish calls for those ingredients. This will help
curb wastage.

4. Conduct regular inventory checks: Checking your inventory regularly, helps you
know which ingredients will expire early so they can be used up before time to avoid
wastage.

5. Monitor current wastage to reduce food costs: Keep an eye on the meals that
customers rarely order or meals that come back to the kitchen barely untouched.

6. Track food prices and prepare for increases: if the costs go up due to seasonal
change, you could take it off your menu until things normalize or recalculate your
cost and set a new selling price.

7. Have a standard serving portion: measuring your food and serving the same quantity
daily, helps in controlling your cost and prevents wastage.

8. Offer daily specials on leftovers: This can be done with leftover ingredients, rather
than allow them go to waste.

Running a food business or owning a restaurant can be a fulfilling venture if you understand
how to operate, knowing where and how to keep your costs low to boost profitability.

FUN EXERCISE

Answer these questions with the first thought that comes to mind. You can email me your
answers if you wish.

1. How have you been calculating your costs?

a) Guess work

b) Rough Estimate

c) I just fix a price I think is convenient

d) I use the costing formula as above.

2. What percentage is your ideal food cost?

a) 35 - 40%

b) 25% - 30%

c) 50% - 60%
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 d) I never knew about food cost till today

3. What have you been doing with leftovers from your restaurant?

a) I eat it at home.

b) I convert them to a new menu

c) I donate it to charity

d) I trash it

PS: This exercise is just for fun and for you to compare your business operations to what
you have read from this chapter.

COSTING STRATGIES FOR MANUFACTURERS

CASE STUDY: FASHION

CASE STUDY 2:

Lisa runs a home based tailoring shop where she makes clothes for women. She recently
entered the Lagos Fashion week show and needs to make some ready to wear denim jeans
outfits for sale. Let’s guide Lisa on how to calculate her cost price, wholesale and retail
price.

When it comes to fashion, it is a whole new ball game in costing and pricing. Back in 2012, I
started my fashion accessories brand called Uyai by Peniel which eventually evolved into a
clothing line.

I shut down that business by 2014 because I decided it was time to move on to something
my heart was beating for; food. I had experienced a whole lot in the fashion industry from
exhibitions, to trainings, to runway shows, I had experienced them all.

A lot of fashion designers and dress makers do not understand pricing. I didn’t at the time. I
sold according to perception and also what my competitors were selling. I made a lot of
money because I was lucky enough to be in a new fashion niche at the time too (Ankara
accessories) so the demand was high and people would pay a premium for my designs.

At some point I got fed up with how saturated the market had become and started training
people on the craft until 2014 when I got clarity to turn my cooking passion into a profitable
venture. (You can read more of my story in my book ‘How to start an Event Catering
Business’)

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The fashion business costing and pricing strategy is a unique one especially for the ready-to-
wear niche. The value of your product in front of your customer’s eyes is key to you fashion
business success.

WHAT IS COST OF MANUFACTURING?

Cost of manufacturing can be defined as the cost incurred by the factory to run the factory
making clothes or garments.

Factory running costs include direct cost (materials) and manufacturing overheads (indirect
costs).

COSTING FOR APPAREL MANUFACTURING

Step 1: Create a Cost Sheet or table.

A cost sheet is a statement which shows the various components of total cost of a particular
product.

An ideal cost sheet or table should be simple yet comprehensive enough to have all the
necessary information about the garment you are producing. A complete costing sheet
should list all of the elements pertaining to the categories mentioned earlier (materials cost,
manufacturing costs, overhead cost)

Step 2: Consider your direct cost (materials used for production).

 Fabric: this usually constitutes 60% - 70% of the total garment making cost
(depending on the garment and fabric type) and requires many calculations.

 Trimmings, threads, zippers, buttons, etc.

Step 3: Consider your indirect cost (manufacturing overheads).

 Indirect workers’ wages

 Staff salary.

 Power/utility bills or Running cost of generators

 Repair and maintenance cost.

 Factory rent

 Administration cost, etc.

NOTE: When calculating your direct cost (cost of materials used) it is imperative to note

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the bulk prices of each material, so as to divide by the overall quantity to arrive at the unit
cost.

SAMPLE COSTING TABLE FOR FASHION PRODUCTION

Here’s a sample table breakdown of what a costing table should look like.

STEP 1: COST OF MATERIALS

ITEM QUANTITY UNIT OF UNIT TOTAL NOTES

MEASUREMENT PRICE AMOUNT

100% cotton 1.5 Yards 1000 1500 Estimated

Denim fabric price for
example
purpose

Metallic buttons

thread

zippers

Rivets

Applique, ETC.

STEP 2: OVER HEADS

Labour (this includes

wages if you are
outsourcing

Rent

Utilities

Transportation/logistics

Fuel

Maintenance

Labels

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Packaging

Embroidery, etc

FORMULA FOR CALCULATING COST OF PRODUCTION

Here are some formulas for calculating cost of production;

COST OF PRODUCTION = Direct cost of materials + cost of labour + Cost of Overheads

UNIT COST = Cost of production ÷ No. of apparels to be made.

WHOLESALE PRICE = Total cost of production + profit margin (your profit margin should be
50% or more)

RETAIL MARGIN % = Retail price – cost price ÷ retail price.

RETAIL PRICE = (Cost of item) ÷ (100 – mark-up percentage) x 100

Calculation Example of Unit Cost:

Cost of Production: N135,500

Unit cost: N135,000 ÷ 50 = N2,700

OVERHEAD COSTS

You have been hearing about overhead costs since you started reading this book. It is
inevitable in every business so it must be included in your costing calculations.

Now you may be wondering how to calculate the overheads which include rent, salaries and
all to the cost of production. You can determine this by using monthly production data.

HOW TO CALCULATE MONTHLY OVER HEAD COST

Step 1: Calculate the Average monthly production of your company.

Step 2: Divide your monthly overheads by monthly production quantity to determine your
company overheads per piece.

NOTE: if you are a retailer, knowing your monthly overhead cost will help you calculate
your retail price properly.

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 BENEFITS OF MANUFACTURING COSTING

1. Helps control materials, labour, and production costs.

2. Useful for budgeting.

3. For setting standards for measuring efficiencies

4. It allows the best use of limited resources.

5. It helps with management control.

6. It helps in cost audit and price determination.

7. It helps in decision making.

8. It helps create an expansion strategy.

9. It ensures optimum profitability.

10. It helps disclose sources of wastage.

11. Guides you in setting prices of your products.

12. Ascertains the profitability of each product manufactured.

13. Helps in the effective control of stocks and raw materials at various stages.

14. Helps in preparation of budgets.

15. Helps in implementing a cost control system.

NOTE that you can apply manufacturing costing formula to wig making, dress making, shoe
and bags, accessories, etc.

Profit margins and mark-up profits are usually determined by the business owner,
although, some industries have standards and bench marks.

COSTING AND PRICING FOR RETAIL BUSINESSES

The retailer businesses sell their products or services to end users (customers) for their
consumption, use or pleasure. Some retailers sell in store while some sell online or over the
phone.

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Some very common retail businesses are clothing, Jewellery, groceries, convenience stores,
and cosmetic stores.

Setting the right prices for your products is a balancing act. Unless you are stocking from a
company that already has a Recommended Retail Price (RRP), setting your selling price
requires a straight forward calculation system.

Factors to consider before setting your prices include:

1. Production and Business cost

2. Revenue goals

3. Competitor pricing.

4. Surrounding Situations (we will discuss this in Pricing Strategies chapter)

For retailers, you have to consider your specific situation before you use a pricing strategy.
Before we talk pricing strategies, here is an easy formula to help you calculate your retail
price:

CASE STUDY 3:

Vivian has an online store that sells human hair. She buys a human hair wig for N35,000
and wants to sell it on Instagram. Let’s help Vivian calculate her retail price.

RETAIL PRICE = (Cost of item) ÷ (100 – markup percentage) x 100

If Vivian’s human hair wig was bought at N35,000, using a 50% mark-up percentage
(remember, your mark-up is entirely up to you and your environment, your pricing strategy,
bearing in mind, your competitors and also remembering the value of what you sell)

Some people mark up as high as 100% depending on the value they attach to the product.

Retail price = 35,000 ÷ (100 – 50) x 100

Retail price = (35,000 ÷ 50) x 100 = N70,000

This pricing strategy is relatively straight forward but is not applicable to every retailer. In
the Pricing Strategies chapter, I will highlight 8 common pricing strategies to make your
pricing calculations easier.

Another strategy Vivian can apply is the Manufacturer Suggested Retail Price (MSRP). This is
the price a manufacturer recommends to retailers who sell their products. Manufacturers
use this method to standardize different prices of products across multiple locations and
retailers.
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While this method saves you a lot of time when pricing your products, its downside is that,
retailers who use the MSRP cannot compete on the price because other retailers are selling
at the same recommended price.

HOW TO COST AND PRICE FOR SERVICES

Calculating the cost for a service is one of the most challenging things every small business
owner faces. It may seem so since there is no physical product to quantify.

Some of the businesses who face this challenge are event planners, event decorators,
ushering agencies, coaches, salon services etc. There are fashion designers and dress makers
who also fall into this category.

The expenses that go into providing a service are more subjective than the expenses that go
into making a product. How much you charge a customer doesn’t always seem to directly
correlate with the amount you pay to perform services.

While there is no certain blueprint on how to charge for your services, however, there are
some tested and trusted methods you can use to learn how to price your services.

There is a price for doing business no matter how easy the service rendered looks, if you do
not price right, you will not cover your costs and eventually run at a loss. Yes! Service
providers can run at a loss too.

The 2 major factors to consider when considering a price for your service are Value and
Time. Other steps include:

1. Calculate your cost using cost-based pricing:

Cost based pricing is a system of pricing were businesses add up the costs involved in making
a product or providing a service and mark up their prices from there.

The cost of a service based business is different from a product based business. Even though
as a service provider you may not have to stock up on inventory, you will definitely still need
money to run the business.

Cost of service = direct costs + indirect costs

Understanding the actual cost put into your service business helps you learn how to price
your services and charge your customers right.

Direct costs are expenses that you need to run your business like: direct materials, direct
labour, manufacturing supplies (if any)

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Indirect costs are expenses you need to run your business but cannot be pin pointed to a
specific project. Indirect costs are your overhead costs such as; Rent, Utilities, Equipment
and maintenance, Insurance, Staffing, marketing, advertising, Phone bills, data,
fuel/transportation, etc.

2. Survey the market

Look around and figure out what people in the same business as you are charging for similar
services? Find out if the market is actually thriving. This system is called market-based
pricing. This system is not sustainable as it is wrong to base your pricing based on what your
competitors are charging.

Knowing what your competitors charge helps and guides your own pricing to stay within
base. It helps you know what’s happening in the industry and can reveal what sets you apart
from your competitor.

For your prices to stand out, show customers the value of the unique experience your
company offers. There we go, value!

3. Know your target audience and your perceived value.

You need to understand how your audience perceive your business. No matter how much
you charge, you won’t make money if customers are not willing to pay.

Have you noticed that sometimes, you slash your fee just to get customers buy-in and
nobody pays? You need to know your customers and how they think to be able to sell to
them.

Before you set your prices, use a market study to collect information about your target
customers. Find out how much your potential customers are willing to pay. This is called the
Value-based pricing. This strategy bases its service prices how much consumers value the
offerings.

Get to know your customers to determine just how valuable your services are in their eyes.

4. Consider the time you have put in.

As much as you have to consider your costs, competitors, business value etc. as mentioned
above, you also have to calculate the time you have put into your business.

When you think about how much time you put into providing a service, you realise that the
longer you spend on a project, the higher you should earn. To be able to come up with a fair
price, track how long it takes you to complete a project.

Another factor is to consider how long you have been in your industry. The Longer you have
been in business, the more value you add to your company and the service you provide.

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Simply put, if you’re an experienced tested, trusted and reputable individual in your industry
you can charge more.

Your Value increases because people want to buy from or patronize people they can trust;
People with experience.

5. Determine a fair profit margin.

Coming up with a fair profit margin is key to turning a profit. You have to consider your
costs, the market and your perceived value, to decide what percentage you want the profit
margin to be. Every industry has its peculiar profit margin but a 10% margin is typically
average.

So to determine your price for rendering a service;

(Total cost + overheads) x %profit (this is not a proven technique but it helps you understand
how to charge for your service).

6. Charge an hourly or Per-project rate.

Time is precious, so be absolutely sure you can deliver on time before you charge for the
time itself. Decide whether or not you want to charge an hourly rate or charge per project.

How you charge is also based on your industry, for example, as a caterer, if a client wants
private catering, I will charge per project because the total time to complete the job can be
very uncertain. Whereas, a counsellor or coach can charge per hour and regulate his time to
fit the service.

CASE STUDY 4:

Mike is a marketing consultant and has set up a firm to help people who need working
strategies to grow their businesses. Mike works 50 hours per week. He spends N5,000,000
annually on rent, utilities, and running cost for his business. He decides to devote 20% of
his time to non-billable work. Mike wants to know how to bill people for his time and
knowledge shared.

The best strategy for Mike is the hourly service pricing. Let’s calculate how much Mike can
earn from charging by the hour.

Step 1: Multiply 50 hours by 52weeks in a year (since he works all year) to find his total
hours

Total hours = 50 x 52 = 2,600 hours in a year

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Step 2: Calculate non-work hours which are non-billable hours

Non-billable hours = Total hours x 20%

2600 x 0.20 = 520

Non-billable hours = 520

Step 3: Subtract his non-billable hours from his total hours to get his billable hours

Total hours – Non-billable hours = billable hours

2,600 – 520 = 2,080

Step 4: Calculate his hourly rate.

Hourly rate = Total annual costs ÷ billable hours

N5,000,000 ÷ 2,080 = N2,403.8 hourly rate (to break even). He needs N2,403.8 per hour to
break even but this does not include profit yet.

Step 5: let’s determine his profit margin.

Assume his desired profit margin is 15%.

Profit margin = hourly rate x profit margin%

N2,403.8 x 0.15 = N360.57

Step 6: Calculate his hourly service price.

Profit margin + hourly rate = Hourly service price.

N360.57 + N2,403.8 = N2,764.37 (Mike will charge his clients N2,764.37 per service hour)

HOW TO CHARGE PER PROJECT

If Mike was an event planner with the same rent and running costs and decided to charge
project, using the same fee of N2,764.37 to find out how much he will charge to complete a
3 days project will be:

Number of hours x Hourly rate

72hours x N2,764.37 = N199,034.64

His charge for a 72 hours project will be N199,034.64

NOTE that he can decide to use higher profit margin to calculate.

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There isn’t a single way to actually calculate what to charge for your services. It’s up to you
to decide what your time and expertise is worth. Your target clients are also a determining
factor of what to charge.

Knowing how to calculate your profitability accurately makes room for your business to
thrive.

Deciding a target profit has to be thought out carefully. You want to mark your prices high
enough to get a good profit margin, but also you must avoid getting a reputation for
charging too high, well, unless your target are premium clients and your offerings are luxury.

Know your worth and choose a service pricing strategy that matches the value of your
offerings.

This case study is also applicable to nail salons, hair dressers, massage parlours, event
planners, therapists, etc. calculate your costs and charge per hour or per project/job

HOW TO CHARGE FOR A PRIVATE CATERING SERVICE

CASE STUDY 5:

Shirley is a caterer and works from home. A client contacts her to cook for her daughter’s
wedding for 300 guests. The client wants 3 types of rice and 2 types of soup with swallow.
The client has bought all the ingredients and just needs Shirley to come with her team to
cook in her compound and also bring along her chaffing dishes and plates. Let’s help
Shirley calculate her charge.

STEP 1: Calculate your rental cost.

DESCRIPTION QUANTITY UNIT TOTAL NOTES

COST
(NGN)
(NGN)

1. RENTALS/AD HOC

Chaffing dishes 9 1500 13,500

Plates 300 50 15,000

Soup bowls 100 50 5,000 When serving 300 guests,

the swallow ratio is usually

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 less than the rice.

Cutleries 300 20 6000

Coolers 9 500 4500

Table cloth 2 1000 2000

Dishing spoons 9 100 900

Service staff 10 3000 30,000

TOTAL 76,900

Step 2: Calculate your service/labour fee

2. LABOUR FEE

Head chef 35,000 30,000 I used the hourly rate

calculation to determine
this

Other cooks 2 5000 10,000

Kitchen Assistants 2 3000 6000

TOTAL 46,000

Step 3: Calculate your logistics cost.

2. LOGISTICS

Transportation 2days 5,000 10,000 For such cooking jobs, the

caterer usually spends the
night cooking, hence
transportation was
calculated for 2 days

TOTAL 10,000

Step 4: To determine her total fee = (rentals + labour + logistics)

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76,900 + 46,000 + 10,000 =132,900

Step 5: Calculate service charge = 10% (some caterers charge higher than 10% or lower,
depending on the number of guests. For a 300 guest event, 10% is ideal).

Service charge = 132,900 x 0.10 = 13,290

Step 6: To get Grand Total = Total cost + service charge.

132,900 + 13,290 = N146,190 ( This is what Shirley can charge her client, she can also
decide to mark-up her profit)

Note that the figures are only estimated and are not a bench mark. Based on your pricing
strategy, you can charge higher or lower. Other service providers can also use this calculation
to determine how to charge when faced with familiar scenarios.

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 CHAPTER TWO

PRICING STRATEGIES

WHAT IS PRICING STRATEGY?

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Pricing strategy refers to the method(s) companies use to determine the price of their
products or services. In our costing chapter, we learnt that businesses base the price of their
products and services of production, labour and logistics (overheads) and then add a
percentage to make profit.

Setting prices on your products can be tough. If you set them too high, you miss out on
valuable sales and if you set them too low you might be running at a loss or very low profits.
There are certain factors that influence the different pricing strategies such as:

 Revenue goals

 Brand positioning.

 Marketing objectives

 Target audience.

 Product attributes.

 Value perception.

It will interest you to know that pricing strategies should not be based entirely on your cost
calculation. So why did we waste all that time calculating cost then? You need your cost of
goods as a guide on setting a profitable strategy.

The best pricing strategy maximizes your profit and revenue. So what are these pricing
strategies?

TYPES OF PRICING STRATEGIES

1. PENETRATION STRATEGY:

This strategy is usually used by start-ups and emerging companies trying to break into an
already competitive market. The penetration strategy is when a company enters the market
with an extremely low price to grab attention from higher priced competitors selling the
same product. That giveaway or cheap sale new companies do to launch their product or
service is called the Penetration strategy.

PROS OF PENETRATION STRATEGY:

 It draws a lot of attention and traffic to your business.

 It is an ideal strategy for clearing off unsold inventory or out-of-season stock.

CONS OF PENETRATION STRATEGY:

 It is not a sustainable strategy as using it for a long period of time can result in loss.

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  If used often, it could give you a reputation of being a bargain seller and will only
attract customers looking for a bargain.

2. COMPETITIVE PRICING STRATEGY:

Competitive pricing also known as competition-based pricing is a strategy that focuses on

the existing market rate for a company’s product or service. The idea behind this strategy is
to beat out the competition.

A lot of small business owners use this strategy. Companies that use this strategy do not
consider the cost of their products or their consumer demand. They use their competitors
pricing as a benchmark to set their own.

PROS OF COMPETITIVE PRICING:

 This strategy can be effective if you can negotiate with your suppliers to access a
lower cost of goods to remain profitable

 This strategy works if you are in a highly saturated space and a slight price difference
may be the deciding factor for customers.

CONS OF COMPETITIVE PRICING:

 Lower prices mean profit margins, so you will have to depend on higher sale volumes
to remain in business.

 It can be difficult to sustain if you’re a smaller retailer.

3. BUNDLE PRICING STRATEGY:

We see this type of strategy during valentine, Christmas or any festive season here. In this
strategy retailers put together a couple of protects and sell at a single price. For example,
during Christmas, we see stores bundle rice, vegetable oil and tin tomatoes to sell at a single
price. This is known as product bundle pricing. If done right bundle pricing drives a lot of
sales for the companies.

PROS OF BUNDLE PRICING:

 You can use this strategy to sell items that are not fast moving, pairing them with fast
moving products.

 Retailers use this strategy to create a higher perceived value for a lower cost and it
attracts different kinds of buyers.

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CONS OF BUNDLE PRICING:

 Selling these products individually to customers after you have bundled them up at a
low cost may be difficult.

 It can lead to cannibalization of your products that can be bought outside the bundle.

4. PSYCHOLOGICAL PRICING STRATEGY:

This strategy is also called the Charm Pricing Strategy. This strategy plays with your
emotions. A lot of high-end supermarkets like Spar and Shoprite use the strategy a lot. They
use odd numbers at the end of their prices. For example, a product of N1000 will be priced
at N999 or N995 to trigger a buyer’s emotion to think that it is actually cheaper.

How do you know which odd number to use? Studies have shown that the number 9 triggers
customers when it comes to retail pricing strategies.

PROS OF PSYCHOLOGICAL PRICING:

 It triggers impulse buying

 It gives buyers a perception that they are getting a deal and that can be hard to
resist.

CONS OF PSYCHOLOGICAL PRICING:

 If you’re a premium brand selling luxury products, lowering your prices can hurt your
brands perception.

 This pricing strategy can give some customers the idea that your products are
defective or are market down for a troubling reason.

5. PREMIUM PRICING STRATEGY:

Here you consciously set your prices above your competitors and brand yourself as a more
luxurious and exclusive brand. This strategy is adopted by 5 star restaurants and hotels.

PROS OF PREMIUM PRICING:

 This pricing strategy makes consumers perceive your products as better quality and
luxurious due to the higher price compared to competitors.
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CONS OF PREMIUM PRICING:

 You must know your target customers and understand your location too before you
set up a premium business. If the people around are price-sensitive, and have other
options to purchase from, your strategy won’t be effective.

6. ANCHOR PRICING STRATEGY:

This is another psychological pricing tactic retailers use to create favourable comparison. In
this strategy, the retailer lists the original price, crosses it off and writes the sale price. This
immediately tells the consumer how much they could gain on the product.

PROS OF ANCHOR PRICING:

 If your original price seems a lot higher than the sale price, it can trigger a customer
to buy based on perceived deal.

CONS OF ANCHOR PRICING:

 If you set your original price to high against the sales price, suspecting customers can
easily price-check with competitors online and this can lead to a breakdown of trust
in your brand.

7. SKIMMING PRICING STRATEGY:

This strategy is when a company charges the highest possible price for a new product and
lower the price over time as product becomes less popular. The mobile phone companies
use this strategy to launch their new products to the market.

PROS OF SKIMMING PRICING:

 This strategy helps recover sunk costs and allows companies sell products well
beyond their novelty.

CONS OF SKIMMING PRICING:

 This can trigger anger amongst customers who bought at the initial full price and can
attract competitors who recognize the ‘fake’ pricing margin when prices are
eventually lowered.

8. KEYSTONE PRICING:

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This is strategy retailers’ use. It is simply when a retailer doubles their wholesale cost to
determine the retail price. This doesn’t always work 100% as there are some products that
might end up being too high or too low.

If you have a product that is easy to get elsewhere, using keystone strategy may be harder to
pull off.

PROS OF KEYSTONE PRICING:

 It works as a quick and easy rule of thumb that ensures an ample profit margin.

CONS OF KEYSTONE PRICING:

 Depending on the availability and the demand for a particular product, it might be
unreasonable for a retailer to mark-up a product that high.

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 CONCLUSION

Costing and Pricing is the heart and soul of every business. If you do not get it right, then
your business may likely fail. After the shutdown of my restaurant, I decided to restart the
business with new strategies. The first things I took care of were my costing and pricing
strategies.

Knowing how to price right improved my profitability and doubled my revenue in a short
time. I had a deeper knowledge of what my customers wanted and how their minds worked
when it came to money.

I moved from zero to 6 figure profits in one month and in 6months I had moved on to 7
figures. This too can be you. Get with the program.

If you are just starting or already in business but having difficulties, it is absolutely ok to feel
this way. But you have to snap out of it and get into the strategy room. No business can
survive long-term without having their costing strategies figured out.

Reading this book to this point shows that you are ready to turn your business around and I
pray you get the clarity you desire.

I will like to know how this book helped your business. Kindly send me a review to
chefpenielng@gmail.com or connect with me via www.instagram.com/chefpeniel

I will love to read from you.

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ABOUT THE AUTHOR

Peniel Chris-Enwenwen resigned from paid

employment in 2011 to focus on business. She
joggled several businesses until 2014 when
she decided to turn her passion for cooking
into a profitable venture.

Having struggled with her business in the past

years, she founded the Food Business Clinic,
an online and offline coaching program that
helps food business owners who are
struggling with their businesses to get clarity
on strategies that will help them scale up.

She holds a B.Sc. in Medical Biochemistry

from the prestigious University of Calabar and a certified Project manager from
COPPS, Accra, Ghana.

She has received multiple awards, nominations and recognitions, such as the
Taste Masters Award from the Port Harcourt International Food Festival and
she was currently selected as a finalist of the Connect Nigeria Top 100
Emerging SMEs for 2019 in the Caterer of the Year Category.

She is an award winning leader of Longrich International, a Global Multi-level

marketing company leading a daily growing team of well over a hundred
dedicated team players.

Peniel is married to Chris Enwenwen and they live in Port Harcourt with their
two beautiful children.

Price it Right! Is her second book project.

She shares business lessons regularly via:

www.instagram.com/chefpeniel

www.chefpeniel.com

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