# How do you determine your pay?



## hmlove1218 (Mar 13, 2014)

Everywhere I look, I keep reading that you should factor your pay into your products, but that is the complete opposite of what I have always been told about owning a business.  I've always heard that you should pay yourself a percentage of the profit of the company..

So that leads to my question; how do you pay your salary?  Do you factor an hourly wage into your product price or a percentage of profit?


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## Lbrown123 (Mar 13, 2014)

Ha! I thought I get to make soap and that is the pay. Lol! Just joking:smile: I think that first you have to make a profit so what you heard may be closer in my opinion. If you have a high amount of loss or expenses there would be no pay.


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## The Efficacious Gentleman (Mar 13, 2014)

Some say factor in an hourly rate in to the cost per bar................


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## DeeAnna (Mar 13, 2014)

If you pay yourself out of your profit ... that money by definition is not profit! Profit is the income above and beyond the expenses of operating your business. Profit compensates you for the risk of owning a business and allows the business to be improved and expanded. Profit is not there to pay for current expenses, including labor.

If you had to pay someone else to do the work you normally do, would that labor cost be paid out of profits? No. It's an expense of operating the biz and that labor cost should be part of your base cost of your product. If you pay yourself that same  salary, the same is also true -- it is an expense that is part of the base cost of your product.

If at some point you are successful enough that you can use profits to reward yourself -- perhaps invest in an IRA, or pay yourself a bonus, or whatever -- that's your choice. 

Ever wonder why people start a small biz and eventually go broke after years of hard work? All too often, they don't take care of themselves as well as they do everyone else. They've been pulling every cent out of the biz just to pay for groceries. They have no profit and they cannot do anything more than just barely exist.

Yes, it is true that the owner often cannot draw a salary from a young business while it's getting established. And that can be a death knell for owners who don't have enough savings or outside income to support them while the business gets on its feet. But the base cost of that labor should always be included in the product costs, not in the profit margin.


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## Lindy (Mar 18, 2014)

Actually the business model is to pay yourself out of gross profits and then what is left after other expenses is net profit.  I've been putting my wages into my soap but that just doesn't work so I'm going back to the business standard.  In the rest of the business standard you will pay for employees out of gross profits as well and that should not be more than 10% of your sales.


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## hmlove1218 (Mar 18, 2014)

That's what I've always heard. I was and of wondering because when I've played around with pricing and it costs roughly a dollar to produce a bar, and retail recommendation is about $3.50 but after calculating in my pay (which I set for only $8/hr) my price per bar jumps up to anywhere from $10 to $15 a bar


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## The Efficacious Gentleman (Mar 18, 2014)

How long does it take you to make soap?


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## Belinda02 (Mar 18, 2014)

You take the cost of your product and include a wage to determine final sales price.  And than determine if the market will support that price. You can always adjust the price up or down based on what your market will bear.  Do u have competion? Do you have a ready market? What is your time worth?

If you sell enough of your product than there may be a profit but probably not.  It can take a few years to build your client base.  There will probably be unexpected additional costs.  Such as equipment and travel expenses. It is possible to outsell your competion, selling every bar and still lose money.


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## hmlove1218 (Mar 18, 2014)

Not too long. My melt and pour is what takes the longest since they have to be wrapped. It probably takes 30 minutes to an hour depending on how many oils are in a batch or if its MP


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## The Efficacious Gentleman (Mar 18, 2014)

If you make 16 bars in an hour, at $8 an hour you're adding $0.50 to the price of a bar


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## hmlove1218 (Mar 18, 2014)

Maybe there's something wrong with my calculator then.. Ill double check all my equations


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## The Efficacious Gentleman (Mar 19, 2014)

As an example:

Batch is 20 bars.  Ingredients cost $10.  Time is 1 hour and the rate is $10 an hour.

Total cost for the batch is $20.  Divide the batch cost by bars to get bar cost, which is $1 per bar, including your pay.

A very simple example, to keep things clean.


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