How to Create a Profitable Budget For Business
A budget is one of the key documents for any business or freelancer, especially if their activity involves the provision of services or if the price of their products is not fixed.
The budget is also the cover letter of every professional and constitutes, in many cases, the first contact with a client, so it is a tool that must be used with care since incorrect use can be decisive to make us lose a potential buyer or user.
While it is true that price is often a determining factor in the user’s purchase decision, a budget can add value to our product or service, since it allows us to show our expertise or implement different marketing techniques to make our offer. more attractive to the customer.
When a professional considers how to make a budget, he must try to balance the total expenses, the hours of work and resources consumed, and the profit margin that he wants to obtain.
Making the correct budget for each project or client can be an art, but always from transparency and common sense.
Criteria for setting prices in your budget
Pricing is a topic that can be used for another whole article since it depends on various factors, criteria, and casuistry. However, given its importance when making a budget, we have included these basic criteria for guidance:
- Cover costs: many freelancers, self-employed professionals, and businesses must previously analyze what is the hourly price to be passed on for their work based on their fixed and variable costs and the distribution of their working time.
- Profit margin: on the cost of the work, the self-employed will define a percentage of business profit. Its amount will depend on the commercial strategy with the client and if the costs are low enough to allow it.
- Market price: it is important to have references to the prices of the competition and also of how far customers are willing to go, both above and below.
- Promotions: the self-employed person must assess the inclusion or not of possible promotions to make their offer more attractive.
There are two common mistakes to try to avoid when setting prices:
- A too low price devalues the value of your work, your product, or your service, as well as the risk of failing to cover costs. Also, if you start with prices that are too low, then it will be more difficult to increase them to reach a true profit.
- A price that is too high or well above the average market price or the added value that your product or service can offer can make you lose a customer before even starting a negotiation. If you choose to move in a high price range, above the average of your competitors, be sure to justify that price increase properly or to provide added value that balances the quality/price ratio.
What should a budget include?
A budget should be clear, concise, and detailed. There are various techniques to write a budget, but whatever option you choose, it is best to detail each and every one of the elements that make up the service as much as possible, so that the client knows exactly what they are paying for.
There are a number of basic elements that every budget should include:
– Details of the company/service provider:
In this section, the data of the company or professional service provider must be detailed, such as the name or company name, the NIF or CIF, the tax address, and other contact information, such as the telephone and/or email.
– Client data:
The budget must reflect the name of the client (either individual or company), as well as their CIF or DNI and address.
The concept details the elements that make up the budgeted product / s and/or service / s.
In this way, the concept can include different products and services, in addition to the hours of work, the materials used, and, where appropriate, other associated costs, such as contracting other third-party services, licenses, supplies …
This section must include the number of units of each element that makes up the concept, the unit cost of each of them, and the total cost of each group of units of the same nature.
The amount must be broken down indicating the taxable base, that is, the sum of the concepts without VAT, the percentage of VAT that is applied, and the total amount of the budget, which results from the sum of the taxable base plus VAT.
– Pay mode:
It is important to study the form of payment for each budget. Normally, when the amount is not high or does not require the prior acquisition of material, advances are not usually established. But in the case of a large budget or that involves an important acquisition of material or contracting of third-party services, it is advisable to agree to an advance of a percentage of the total amount.
In this section, you can also specify the means of payment, either by bank transfer or deposit or in cash.
Other elements of the budget
In addition to the mandatory elements described above, there are various techniques that can help us make our budget more attractive and generate greater confidence in our client.
Including the delivery time of a finished project or, even, the intermediate deadlines of the different stages is an important resource to provide added value to our service. However, at the moment that a budget acquires legal validity, it is important to comply with these deadlines well and plan them in advance.
Warranties and technical support
There are certain services or projects that may need to be endowed with certain guarantees (especially when it comes to long-term services) or technical support, which does not have to be included in the amount of the service itself and which must be budgeted in part.
A good technique to make our budget more attractive is to offer this technical support free of charge for a certain period of time.
Add the legal conditions that you consider necessary to avoid misunderstandings or abuse by any of the parties. In this way, you can prevent an inappropriate interpretation of what is stipulated in the document and save problems, time, and money.
Sometimes it will be necessary to present the budget in a different format, such as a proforma invoice or a proposal for a commercial contract for the provision of your services that carries the budget implicitly. This last modality is common for commercial agents, trainers, or programmers who develop their work continuously over time.
Recommendations to prepare a good budget
To give your budget added value, you can include certain elements that will help you in the sales process. Always remember to avoid “literature” and be concise.
- Present the client’s problem from your professional perspective, making an analysis of it.
- Make your proposal: show how your business or company can help your client to find an answer to their problem.
- Include a work plan in which, in addition to selling and explaining the methodology and the way you do things, you can explain to your client in a more practical way what they are going to spend their money on.
Scope of work
You should try to avoid a common mistake, which is to detail what is included, but do not write what is not included. Failure to record what is not included in the budget can lead to misunderstandings, since on many occasions the client may take for granted that certain “extra” elements or services are budgeted that we had not included in the offer.
Aniket Chatterjee is a Digital Marketing professional with experience of more than 3+ years in this field and is well versed with SEO, SMM Google Ads, Bing Ads. He is currently working with better books, Best online accounting and bookkeeping services company helping many other small businesses and entrepreneurs. His keen interest in the field of writing for finance and marketing developed when he was in high school and has been publishing content since then.