Cost and income structure

Give a summary of your costs and expenditure

Although you’ll set out your costs in your financial tables, it’s useful to give a summary of your main costs and timescales for expenditure. Again, this helps show how your business will operate over the next few years. It can be helpful to think in terms of ‘fixed’ costs and ‘variable’ costs, to help plan your cash flow.

• Fixed costs: usually regular or one-off payments that have been agreed in advance, for example rent, insurance and subscriptions. You can review these annually to make sure you’re getting a good deal.
• Variable costs: less predictable costs that will change depending on your business activity and volume of sales. For example, catering supplies and ingredients: you might buy more ice cream in the summer and less in the winter; as you get more customers, you will need to spend more on supplies.

It’s important to show that your costs (what you spend on resources) match your activity – costs are likely to go up as your activity increases or as your sales volume goes up. You may need to employ more staff, move to bigger premises or buy more supplies. Items like insurance will be more expensive as you get more staff and more customers, so make sure this is reflected in your cost summary and your cash flow.

Give a brief description of your main sources of income

Make it clear whether you’ve secured the income (for example, a grant or contract that has already been agreed) or if it’s an income forecast (for example, sales of your new product or service).

If you’re heavily reliant on one source, describe any plans you have to diversify your income or what you’ll do if you lose that income source.

If you have, or are applying for, any loans or social investment, set out your plans for repayment.

Describe your pricing strategy

If you’re trading products or services, use this section to describe your pricing strategy. There are several ways to set a price for your product or service.

• Mark up – Work out what the product or service costs to you, then add a percentage to get the final price (eg cost + 10%).
• Going rate – Look at the competition to see a typical price and try to match it.
• Market-oriented – Set the price based on research with your target market.
• Perceived value – Think about what value the consumer places on a product. It may be significantly more than the product is actually worth. For example, people often pay more for branded goods even though the product is exactly the same as a non-branded item because they perceive it to be better or higher quality.
• Pricing schemes – You may offer discounts for certain groups, or for early-bird payment, bulk purchases or off-peak use.

Psychology is important: remember that expensive items are perceived to be more valuable by consumers, and many voluntary organisations underestimate the value of their work.

Viable trading activity needs to give a surplus between the price and the cost, and your costs may be higher than the competition’s. Make sure you have worked out how much it costs to deliver your product or service before you set your price.