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This week I’m demystifying what a 6-figure income looks like in our industry.  Over the last couple days I’ve done the math to dig deep when someone says that they can “show” me how to make a 6-figure income.  (You’ll want to revisit our posts from Tuesday and Wednesday if you are just catching up.)

And, what did we learn?  We learned that it is REAL HARD WORK.  There is no quick way around this.  But there is fine line between working hard and working yourself into the grave.  And, depending on how your own business numbers work out in the equations I presented this week, you’re either looking at some achievable sales targets or not.

Today, I’m going to share some ways that you can still achieve a healthy income without killing yourself. Also, I realize that many of you aren’t trying to achieve 6-figures.  I want to keep with this example, because this is what I keep being promised by lots of coaches and gurus out there.  You find what income level feels good for you.

SOLUTION #1: INCREASE YOUR PROFIT MARGIN

To increase your profit margin you will raise your prices and cut your costs of services rendered (cost of labor, cost of materials).

This was the example we were playing with yesterday:
Income from 1 wedding: $4000
Cost of Services from 1 wedding: $300
Profit Margin from 1 wedding: $3700.

If we raised prices by 20% and cut out one assistant the profit margin would look like this:

Income from 1 wedding: $4800
Cost of Services from 1 wedding: $150
Profit Margin from 1 wedding: $4650

In yesterday’s example, we were aiming to achieve $130,000 annual profit.

$130,000 / $4650 = 27.95 weddings! (let’s round up to 28)
OR
28 weddings x $4800 price = $134,400 in sales

Which results in:

Income                                          $134,400
Costs of Services Rendered        – $4200  (cost of labor: 1 assistants at $150/each for 28 events)
Profit Margin                                    $130,200  (see note)
Expenses                                       -  $30,000
Net Income                                 $100,200 (BOTTOM LINE)

This is why pricing is CRITICAL to the financial viability of your business!   By increasing your price by 20% you go from doing 36 events to 28 events!  Even if your goal isn’t a 6-figure income, you can save yourself from insanity.  I’ll spare you the math, but if your goal is $50k take-home income, raising your prices by 20% in this example shifts you from doing 22 weddings to 17 weddings.  It’s still hard work, but it’s closer to *normal*.

PRICING is sooooo important to building a sustainable business!  (There are a million other reasons why pricing matters, but this is the biggest one.)

SOLUTION #2: CUT YOUR EXPENSES

Naturally, if you cut your expenses, your income will increase.  You know this.  Some of the biggest offenders that I see are the following:

• paying for ads that aren’t bringing any return on the investment
• doing wedding shows that don’t result in any sales
• dinners and lunches and coffees

Keep in mind, these are REALLY important.  Just make sure they aren’t eating into your bottom line too much and that they’re bring you the results you expect.

ALSO – interestingly enough – cutting expenses doesn’t have as significant of an impact on your bottom line as our first solution, increasing your profit margin.  Your ability to boost your profit margin (increase your pricing) is going to have a much larger impact on how much you earn than solely cutting your expenses.  Do the math and you’ll see that I’m right.

SOLUTION #3: ADD OTHER REVENUE STREAMS

And… I’m going to break right here…

This is a series of blog posts all unto itself.  I want to give you a chance to let the numbers settle in.  Please come back August 30th where I’ll talk about adding revenue streams to your business.

For this series, I’d LOVE for you to share with me!  If you have some fun ideas you’ve seen out there for ways to expand your income, please email me at michelle-at-sageweddingpros-dot-com and I’ll share your tip in our series and credit you and your business.

Please come back tomorrow where we’ll be learning from and Industry Insider.  Next week we have a fun series where the masters in our field share with us how they work to perfect their craft.

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This week I’m talking about the “6-figure income”.  I see a lot of people who want to show me how to make 6-figures in my business.  But, I’m questioning the math this week.  Yesterday, I showed you what 6-figures looks like when you make $100,000 in sales.  (Go back and read the post to see why this is a WRONG way to calculate your income.)  Today, we are working on Example 2 with our sample business.  We will examine how to earn the $100,000 as our NET income (bottom line).

The assumptions that we laid out yesterday for this sample wedding planning firm include:

• Has been in business for about 3-4 years
• Is in a mid-sized metropolitan area
• The business has 3 packages that are priced at $2000, $4000, and $6000 ($4000 being the package that is sold most often)
• Does not have permanent staff members but has 2 event assistants as contractors (These event assistants are paid $150/event and are generally both in attendance at each partial or full planning client’s event)
• The business has $2500 in monthly expenses (which comes out to about $30,000 annually)
• The business is an LLP which means that the owner draws their own personal income from earnings (in layman’s terms: the owner takes a “draw” not a “salary” and typically this is taken after expenses are paid, from an accounting standpoint)

Example #2
Let’s take a look at what 6 figures looks like if you have it as your BOTTOM LINE, your net income.  This is the actual income that you get to draw as an LLP (or sole proprietor) – but still have to pay your 1040 taxes on.  What do you have to do as a business owner to achieve that for your bottom line?

I’m going to back into these numbers, because this is all I know so far:

Income                                           $   ?        (this is what you actually do in sales)
Costs of Services Rendered        -     ?        (cost of labor: 2 assistants at $150/each for 25 events)
Profit Margin                                       ?
Expenses                                     – $30,000 (we know this from our above assumption)

Net Income                                $100,000 (BOTTOM LINE)  (this is what we are trying to hit)

NOTE: I apologize in advance for the algebraic equation… but stick with me!  (If you want the easy-peasy spreadsheet for this where it auto-calculates using your pricing and costs, check out our sales plan download.)

STEP 1

Since all we know is this: Profit Margin – Expenses = Net Income

THEN…                               Profit Margin – $30,000 = $100,000

Means that Profit Margin must = $130,000*

(awesome!)

STEP 2

OK… let’s figure out that top piece (income and costs).  We can figure these out by examining our average sale and average cost of services rendered (or, cost of labor) for 1 singular wedding by doing this…

The average package sold is $4000 and we know that 2 assistants attend this event for $300.  So for each singular wedding (on average) there is a profit margin of:
Income from 1 wedding:                     $4000
Cost of Services from 1 wedding:       – $300
Profit Margin from 1 wedding:              $3700

STEP 3

YAY!  We know the profit margin from one wedding!  So, now we can use that to figure out how many weddings we need to do to achieve the $130,000* annual profit (from Step 1).  (If it helps, here is a ratio:  If $3700 is the profit margin for 1 wedding, then $130,000 is the profit margin to ??? weddings?)

How many weddings does this business need to do to make that $130,000* annual profit?

$130,000 annual profit / $3700 profit from one wedding = 35.1 weddings! (let’s round up to 36)
OR
36 weddings x $4000 price = $144,000 in sales (income)

And, on 36 weddings, you’ll have the 2 assistants at $150 each which calculates to: 36 weddings x 2 assistants x $150 = $10,800

What 6 figures looks like:

If I’ve totally lost you… this is what the math looks like after all the calculating:

Income                                            $144,000
Costs of Services Rendered        – $10,800  (cost of labor: 2 assistants at $150/each for 36 events)
Profit Margin                                    $133,200**  (see note)
Expenses                                       -  $30,000

Net Income                                 $103,200 (BOTTOM LINE)

(**Note: $133,200 is the profit margin for 36 events.  The amount we were trying to back into was $130,000* which is for 35.1 events.  We are rounding up so the number results in the $133,200 amount for profit margin.)

CONGRATULATIONS!

You hit the 6 figures!  Wooohooo!  Your Net Income, $103,200 (bottom line) is what you get to take home after all is said and done.  THIS is what you actually draw as the owner of an LLP (or a sole proprietor) before paying taxes.  THIS is a 6 figure income!!!  YOWZA!  You did it!

But – wait – 36 weddings.  Is that realistic?  Is that normal?  Oh – I know it’s possible.  I’ve seen it done. But – REALLY – it’s kinda insane!  It’s especially insane with only 2 weekend assistants who are contracted only for events.

Like I said: making 6 figures takes REAL HARD WORK!  It disappoints me that I never see this math done for people when $ is being discussed with small business owners.  There is no quick way around this.  If you want to make 6 figures, you better WORK super hard!

We all know that business ownership is hard work.  But, if you want it to be a little less hard (LESS insane) you’ll have to adjust these numbers in order to reach the 6-figures.  Increase your price, cut your costs, and cut your expenses.  OR… explore additional revenue streams.  36 weddings may just put you in the grave.

Tomorrow, let’s circle back here and talk about changing your profit margins and what additional revenue streams might be like.

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I see a lot of talk about “how to make a 6-figure income”.  This is not only in our industry but also outside.  A lot of people are playing up to fantasies of becoming rich quickly.  I used to be an auditor and thus have an insatiable urge to validate this with calculations… honest-to-god facts and figures.

This week, I’m going to share what it *REALLY* takes to make 6-figures.  Here’s a hint: REAL hard WORK!  No more, no less.  But, read on for the nitty-gritty details.

The MATH behind 6 figures

Let’s go through some easy-peasy math first.  I want you to really understand what 6 figures looks like from a small-business accounting angle.  First, let’s have some assumptions for the example I’m going to give.  The example business is a wedding planning firm that:

• Has been in business for about 3-4 years
• Is in a mid-sized metropolitan area
• The business has 3 packages that are priced at $2000, $4000, and $6000 ($4000 being the package that is sold most often)
• Does not have permanent staff members but has 2 event assistants as contractors (These event assistants are paid $150/event and are generally both hired for each partial or full planning client’s event)
• The business has $2500 in monthly expenses (which comes out to about $30,000 annually)
• The business is an LLP which means that the owner draws their own personal income from earnings (in layman’s terms: the owner takes a “draw” not a “salary” and typically this is taken after expenses are paid, from an accounting standpoint)

Example #1:
Now when most people talk about “6 figure income” they are referring to the sales made.  (A sale being exactly what you charge your client.)  This means that sales total at least $100,000.

Let’s move into the math. Using the average package of $4000, this business needs to do 25 events to achieve $100,000 ($4000 per event x 25 events = $100,000)  VOILA!  You now have your 6 figure income!  NOT SO FAST!  Let’s see what this looks like with your BOTTOM LINE:

Income                                        $100,000
Costs of Services Rendered        - $7,500  (cost of labor: 2 assistants at $150/each for 25 events)
Profit Margin                                  $92,500
Expenses                                       – $30,000

Net Income                               $62,500 (BOTTOM LINE)

This Net Income is what you are left with as the owner of the business.  THIS is what you actually draw as the owner of an LLP (or a sole proprietor.) THIS is your personal income: $62,500 – not the 6 figures of $100,000.  Hell, it’s a really nice income, I think.  But it’s NOT a 6-figure income.

All that matters in terms of your own income is the bottom line.  What happens if this business’s expenses were $7500/month – or $90,000 for the year?  (I know this is a LOT, but play along with me.)  The bottom line would be $2500.  That sure doesn’t look like 6-figures to me.

You see… making 6-figures in your sales doesn’t really matter.  You have to examine your business as a whole.  You have to look at your bottom line.

What do you think about this?

Come back tomorrow… I’m going to do some more math and show what it takes to get $100,000 as your BOTTOM LINE!  HINT:  a LOT of HARD WORK.

Here’s what I had to say about women and their worth…

Women are motivated by factors that go far beyond money.  There are a myriad of reasons that so many of us ditch our nice salaries at corporate gigs for an entrepreneurial life.  In my talks with women business owners in the last several years, I often hear these factors as motivators for launching a business:

• Desire to be creative and artistic
• Desire to have a more flexible schedule
• Desire to create a lifestyle based around a family AND a career
• Desire to call the shots
• Desire to “make a mark”

Of course, we want to earn a living, but money isn’t usually the top priority for women who launch a business.  Read the rest of this post here (applicable to ALL fempreneurs)… and register for POSH before October 1st!

I’ve been shopping around for better health insurance and have been busy comparing rates and benefits from different providers.  I’m not necessarily shopping for the cheapest insurance.  I realize that not every health insurance plan is the same and I’m willing to pay for better coverage.  But, it is important that I know what I’m getting myself  into in terms of cost.

Some sites were easy to navigate and I was able to determine what I will roughly be getting and for how much.  Other sites were void of any information.  AND – there was nothing to give me an idea of how much I would be spending.  I realize I won’t get a fixed quote until I can speak with an agent and give them all my exact details.  But, I’d like to know what I can generally expect for someone of my age with 2 family members.  It doesn’t have to be exact.  But, there is a lot of difference between $500/month and $3000/month.

On the sites where I could not get any information, I had to fill in all my contact information and wait for someone to contact me.  I don’t like being SOLD at, so this doesn’t sound appealing to me AT ALL… not without having some general information under my belt.  I want to be able to research a bit on my own before talking to someone about what their health insurance plan can give me.  I want to be an informed decision-maker.

Do your clients go through this?

I realize that health insurance is A LOT different from wedding services… but… are your potential clients experiencing frustration from your website?

I encourage most* wedding pros to list starting rates on their websites.  Potential clients need a general idea of what wedding services will cost.  Yes – our services are very customized and it’s impossible to give a fixed price until we have a consultation.  (This is much like health insurance.)  BUT – you should have ‘starting rates’ on your website.  People need to have the ability to research on their own.  They need to have general information at their disposal.  Or, they’ll leave… frustrated before they’ve even met you.

Have you had this experience before while trying to buy something?  How did it make you feel?

_____________________

*I say “most” because every business is different and every business has a different target market.  If you are a very high-end wedding planner I would not encourage you to list pricing.

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Last week and this week, we are discussing what to do when you are priced in the middle to high-end of your trade but keep attracting low budget brides.  If you are just catching up, you’ll want to revisit our posts from last week:

• Where is the client getting their information?
• What does your branding say about your business?
• Where are you advertising?

I want to clarify: there is nothing WRONG with doing business in the low-end market.  If this is truly your target market and you are attracting this market, then keep on it.  You are matching your product/service with your ideal bride and you are doing the RIGHT thing.  There is opportunity for success in this market and some people do it VERY well.  Dana LaRue from Broke Ass Bride comes to mind, as does Khris Cochran of DIY Bride.

However, I have one note of caution if your products or services are in the low-end of the pricing spectrum: ensure that you are truly targeting this market with the intention to offer something unique and individual and not because you are wanting to compete on price.  This not only results in an under-cutting of the competition but also may be pushing you towards an unsustainable and unprofitable business model.

These posts are for anyone not meeting their client match.  We are only using the low budget vs high budget mismatch as an example because it is one that I so commonly hear from wedding pros.

And, so we continue today with our series to our fourth question…

What is your pricing history?

If you’ve bounced around in your pricing strategy, the market may not know what to make of you or your business.  You have not been clear in who your market is.  One year it’s the low-end market and the next year it’s the high-end market.  Cats and dogs living together!  Mass hysteria!  Here’s an example that may help you relate to this confusion:

A photographer new to the industry may decide that he wants to gain experience before assigning a premium price on his services.  So he starts his business with low pricing thinking that he can increase pricing over time as his experience grows.  He launches his business and lands a bride who refers his services to all of her girlfriends.  What he doesn’t realize is that this bride is telling her girlfriends, “Hey you have to call my photographer.  He gave me such a great deal on my wedding photographer!”  What the photographer doesn’t realize is that he has been branded as the “low-priced photographer”.  In year 2, when he raises his pricing to what is more fair for his region and the services he offers, all of his inquiries experience sticker shock.  They had heard something quite different from their friend.  They think, “Who does he think he is?!”

This is a common mistake when we first launch.  We make this mistake based in not having confidence in our skills, not feeling that we possess the experience yet to justify a hefty pricetag, and not knowing what our field charges in our region for comparable services.  (My advice: always start out at least 20% higher than your initial gut feeling.  And, if you must start with low pricing make sure you’ve communicated “special introductory pricing for the first 5 clients who book our services”.)

The same mistake is made when we offer discounts for products or services.  Word gets out and people come to expect discounts from your business.  My advice: don’t ever discount services.  While negotiating, it’s better to give “an extra service” than to discount the value of what you do.

How to rectify your pricing mistakes…

If you’ve made the mistake of pricing too low or offering discounts, you are not alone.  This is not a permanent mistake and you can rectify this.  However, it may take a little time for consumers to adjust.  If you have been priced too low and you want to correct it, do it NOW.  If you have starting rates on your website, beef them up.  And, make sure to put an effective date so that people understand that these prices do fluctuate.  (“Pricing effective thru December 31, 2011.”)

I want to warn you…

People who referred you in the past will continue to refer you based on the old pricing and this wave of inquiries will continue to have people thinking that you are a low-end vendor.  You will most likely have a season or two of inquiries resulting from this in which you’ll need to educate people on your new pricing.  If anyone says, “But you offered my friend Sarah a $500 day-of wedding planning services!” it is OK to reply, “Yes, I did.  In the last year I’ve made significant growth in my expertise.  I’ve taken time to expand my experience and education by doing X, Y, Z.  The pricing given to Sarah was introductory.”  They won’t be happy with this answer, but it’s an appropriate and fair answer.

Anyone who has been shopping your services or considering your services may not be happy with the pricing changes.  In fact, they may not email you for a consult.  And, you may never get their business.  You may, in general, see less inquiries and referrals.  THIS IS OK.  If the majority of referrals you currently get are for the WRONG customer (not your target market) then why would you want to continue in this way?  However, be prepared for this change in your traffic.

Once you have retrained the market and re-considered your branding in how it relates to your new pricing, you’ll be making a match with your target market.  And, you’ll be finding brides who can afford your services and value what you do.

Yesterday, my feature was about pricing for photography services.  How do you factor “YOU” into your pricing?  We so often set pricing on so many factors, but we haven’t taken into account the actual TIME it takes to do the work we do.

Hop on over to Resolve and read my post:

Pricing: How to Factor for YOU

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There is one thing I want to counsel you on today:

Do NOT lower your PRICES.

I could go on and on about pricing… and how you need to price according to your value and your service and your experience and your market.  (You can go back and read all of our posts on this topic.)

Today, my message is simple…

IS IT WORTH IT?

If you do lower your prices… to accommodate for people’s budgets or client pricing constraints… then, what does that leave you with?

It leaves you with a whole lot of work for a lot less money and quite possibly an unprofitable and unsustainable business.

So, why do it?  Why lower your prices?  Why offer discounts?  Why sacrifice the future of your business?  Just so that you can have more “jobs”, more “sales”.  Well the number of sales you have doesn’t equal dollars in your pocket.  And, let’s be honest… this work is too darn hard to be doing it for free.

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This week we are playing “what if”.  (I’m feeling CHEEKY.)  Yesterday, we pondered the “what if” possibility of slashing our advertising budgets.  Today, let’s try another one…

What if you RAISED your PRICES by 20%?

(Imagine that!)

Now, my theory is that a majority of businesses in the wedding industry are under-priced.  Even if you are appropriately priced (which means you are not “low balling”) you are most likely not pricing at level that is in line with the quality and value of your service or produce.  So, I often ponder, “What if everyone in the wedding industry priced according to the real value of what they do?  What if people raised prices by 20?  What if people were confident in themselves to ask for what they deserve?”

Let’s do a little math (no, don’t turn off that browser… this is where it gets REAL):

Let’s say the average price of your service is $3000. And, let’s say your costs are $500.  So now, your profit on each wedding is $3000-500 = $2500.   And, let’s say you want to make $50,000 as your annual income.  You will have to do 20 weddings (or $50,000 divided by $2500.)

Now… let’s raise those prices by 20%:

A 20% increase in your price would be $3000 x 20% = $600.  Not too bad.  Not too much of an increase.  I think the customer could handle that.

So, now your average price is $3600. Your costs are still $500.  Now your profit is $3600-500 = $3100.  You still want to earn $50,000 for the year. At this pricing, you would have to do 16 weddings (or $50,000 divided by $3100.)

WOW!  Do you see how powerful that is?!

By raising your prices by only $600, you would have to do 20% less work… 4 LESS weddings… to achieve the same earning as before.  What does freeing up your time by 20% allow you to do? Grow your business in other ways.  WORK ON THE BUSINESS, not just IN THE BUSINESS.  Or, hell, take a vacation!

We are all working too hard for too little.

A small increase in price can have a huge effect on your earning potential.

Wow… what if we increased our prices?  WHAT IF?

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This week, we’ve been discussing the perils of pricing too low in the wedding industry.  Yesterday, I shared a little pricing formula…  I call it the “pricing recipe” because instead of math, it’s more like a cake, made with only the best ingredients.

Today, let’s assess your pricing.  I want you to examine: “Am I priced appropriately?  Am I priced in a way that is fair?  Am I price in a way that is sustainable to my business?”  Below, find some questions that will be helpful in determining whether you have the RIGHT PRICE.

Questions to ask yourself in assessing your pricing:

• How are others priced in your market?  Where do you fall?
• Are you priced low solely in order to compete?  Are you matching prices with people at the bottom of your market that are under-priced themselves?
• When you analyze how much time you spend on the client, what is your hourly rate?  Is this a decent wage?
• Are you solely capturing your cost of materials and not the actual labor?
• Are you charging for your art?  For the artistic value of what you do?
• If you were to hire someone in your place, could you afford to pay them?
• Can you earn a decent living?  Do you have a sales plan?  Do you know how many weddings you have to do (at your pricing) to earn a decent living?
• Are you scared of raising your prices because you believe your sales will decrease?  Are you inherently attracting people who don’t value your work, but are only looking for “a good deal”?
• Do you believe you are worth it?

Ultimately, it comes down to 3 things: price appropriately for your market and your product or service, price according to the value you give the customer, and price at a rate that will allow you to earn a decent living and have a sustainable business.  Otherwise, you do a disservice to the industry, to your business, and to yourself.

Any other helpful questions in assessing whether your price is appropriate?