Analyzing the Cost of Doing Business: A Guide for Service-Based Businesses

I can hardly believe it’s September. September is the month I take to look at two important elements of business: My cost to provide services and what I’m charging my clients. It’s time to compare and make sure that I’m not only covering my costs, but I’m making a respectable profit. Going back to my business management courses, it is our social responsibility to make a profit. Making a profit says to our clients and our team members that we will be here for the long term.

Let’s talk cost of goods in some cases like mine cost of service. It’s essential that we know what our costs are. Without this vital piece of information, we can condemn our businesses to fail despite our best intentions.

I start the process by looking at the cost of my team. My analysis begins with their wage, payroll taxes, workman’s comp, retirement match, reimbursable, other employee benefits and planned raises for the next year. I then look at other costs like phone, software subscriptions for them, continuing education. Finally, I consider what new benefits I may add in the next year. How will that increase my cost per team member.

Next, I look at the cost of serving the client. Have my software subscriptions gone up? Will I be changing software platforms this year? Have some of my software packages discontinued? For example, my Intuit subscription costs have more than doubled in the past 2 years. Also, the payroll platform that I’ve been using is being discontinued. I must factor in the cost of the new platform for payroll.

What overhead costs have increased this year? Has my insurance gone up? Have I had an annual review of my insurance coverages to ensure I’m still covered appropriately? Have my telecommunication costs gone up? Will I be adding additional tools to do the job? Overhead must be considered and covered by the revenue we are generating.

On the flip side, are there any costs that are now obsolete? Have I discontinued a service? Have I discontinued or changed a service offering? These costs are no longer part of my analysis and must be removed from the equation.

A conversation today about cost analysis would not be complete without a word or two on inflation. We are all feeling it in our businesses and our personal lives. It’s unfortunate, but we must consider how inflation will impact us in the coming year. I’m feeling it more this year that any other year I’ve been in business. I think we all need to take a moment and really research and reflect on how inflation is impacting our businesses and how we will respond to it.