No one can say with certainty how the economy will perform in the coming year or what new government rules will be imposed, but you need to make an educated guess. Why? So you can set prices for your goods and services and be profitable. Looking ahead, there are some additional expenses you will or may face that need to be factored into your pricing. Here are some areas to explore before fixing your prices for the coming year.
Higher payroll costs
If you maintain the same number of employees on your payroll, likely it’s going to cost you more in 2021. If you plan to hire, beware. Consider:
- Minimum wage rates are increasing in a number of states. For example, in Arkansas and Illinois, the rate increases from $10 per hour to $11 per hour; New Jersey hourly rate goes from $11 to $12. Check your state’s rate at the Labor Law Center.
- The Social Security wage base for the employer (and employee) portion of FICA increases to $142,800 (up from $137,900 in 2020), costing more in payroll taxes for higher-income employees.
- Benefits costs, such as health care, that you already offer will probably be more expensive in 2021. In addition, you may want to provide more benefits, such as assistance with child care and student loan debt, which will add to payroll costs.
Even though a vaccine for COVID-19 may be widely available in the coming year, it’s unlikely that businesses will cease many of the safety measures mandated during the pandemic, at least for months to come. The cost of new cleaning procedures, reduced accommodations because of social distancing, and providing protective gear for employees and customers must be factored into your pricing. According to a survey from Skynova, these “COVID fees” have been critical in keeping businesses afloat during the pandemic; 23% said they were very necessary and another 41% said somewhat necessary. The good news is that customers are not deterred by COVID fees, with 57.5% saying they’d patronize an establishment charging them. Don’t overlook these costs in your pricing for 2021.
Investments in technologies
Changing technologies are just a fact of life that add to the cost of doing business. And existing technologies may also present attractive ways to improve how you do business. Determine what you may need to adopt in 2021 so your pricing can cover your investment and maintenance costs. Some technology options to consider:
- Creating an app for your business.
- Adding chat bots to your website to better interact with customers.
- Buying 5G smartphone, assuming there’s this level of connectivity in your location.
The cost of the pandemic to the government has been catastrophic. In order to continue providing services and paying other costs, it’s possible, or even probable, that taxes will rise on the federal, state, and local levels.
- On the federal level, the rate reductions from the Tax Cuts and Jobs Act may be scaled back or reversed (e.g., the corporate tax rate of 21% may be increased; the qualified business income deduction may be eliminated).
- On state and local levels, there’s talk of increasing a variety of taxes (e.g., income taxes, sales taxes, property taxes). And there are already some scheduled increased. For example, on July 1, 2021, New Mexico’s “compensating tax” on services will rise to 5.125%, the same rate imposed on property. And the sourcing rules for the state’s gross receipts tax on businesses within the state will shift from the seller (where the business is located) to the point of delivery (where the customer is located), although the tax on sales of professional services will continue to be based on the seller’s location.
Give your pricing the attention it deserves.
According to billionaire Steve Ballmer, former CEO of Microsoft and current owner of the Los Angeles Clippers, “This thing called ‘price’ is really, really important. I think that a lot of people under-think it through. You have a lot of companies that start and the only difference between the ones that succeed and fail is that one figured out how to make money, because they were deep-in thinking through the revenue, price, and business model. I think that’s under-attended to generally.”
Changes that will or may come into play in 2021 need to be factored into your pricing.