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Atricle Dump - Pricing for Bottom Line Profit
Goal 1. Acquires donorsIf your organization is typical, you lose around 15 percent of your donors each year. They simply stop responding to your appeals.Fifteen percent is average, but it’s a terrifying percentage all the same. If your organization has 10,000 active donors today, and if 15 percent stop giving this year, then you will lose 1,500 donors.This is the main reason that you need to create and manage a well-planned, annual donor acquisition program. You cannot afford to simply mail to yo
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Abs
It might be almost blasphemous to talk about letting go of old brand equity and laying an old brand to rest, but there are times when change is needed. Reformulating and re-designing, or even overhauling an old brand can be a wise decision. If sales are flat and show no sign of growth, you’d better stop kidding yourself and hire a branding consultant.Brands are an extremely vital element in your product and corporate value proposition. With communications so pervasive today, corporate branding and product branding ar
To help understand the question better, consider the following theoretical example:
You sold your last (remodeling) job for $12,000. You used $4,000 in materials and 250 man-hours of people you pay $20 per hour wages to.
If you were asked what you made on this job how would you respond? Would you say:
A) $12,000
B) $3,000
C) Other ___________ (fill in)
In the example above:
If you chose A, you equate profit with sales revenue. Hopefully by now, most of us have been cured of that error (but not all of us I’ll bet!).
If you chose B, you equate profit with the difference between sales and direct costs. Direct costs are those that we pay for the materials we sell or install plus what direct labor costs us. In the example, there were $4,000 in material costs and $5,000 in labor costs (250 x $20). The “profit” was, therefore, $12,000 - $4,000 - $5,000 = $3,000.
Really? What about that nasty little thing called overhead?
If you chose C) and tried to fill in another number, that’s interesting because the fact is not enough information is given to answer the question properly!
We have NO IDEA OF WHAT OVERHEAD is in the example above; let alone how to account for it in our pricing.
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Abso
Common sense appears to be a rare commodity these days. Why is this so?In an era when the emphasis seems to be on all things young, beautiful and sometimes shallow its about time we took stock of ourselves and did our businesses a favor by employing older workers! Age discrimination is a terrible injustice that has far reaching effects on our economy where ever we are.When I was much younger I used to watch these older workers with wonderment and ask myself 'how did they get to be so smart' many of them didn't
If you were asked what you made on this job how would you respond? Would you say:
A) $12,000
B) $3,000
C) Other ___________ (fill in)
In the example above:
If you chose A, you equate profit with sales revenue. Hopefully by now, most of us have been cured of that error (but not all of us I’ll bet!).
If you chose B, you equate profit with the difference between sales and direct costs. Direct costs are those that we pay for the materials we sell or install plus what direct labor costs us. In the example, there were $4,000 in material costs and $5,000 in labor costs (250 x $20). The “profit” was, therefore, $12,000 - $4,000 - $5,000 = $3,000.
Really? What about that nasty little thing called overhead?
If you chose C) and tried to fill in another number, that’s interesting because the fact is not enough information is given to answer the question properly!
We have NO IDEA OF WHAT OVERHEAD is in the example above; let alone how to account for it in our pricing.
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Abs
Any time there is a change in management at the corporate level it can cause a conflict with productivity, efficiency and innovation. For those companies that rely on innovative spirit to propel their profits such decreases can spell disaster for the department or division. Consider if you will a project manager who is rapidly reassigned to another division or another important project.The project team may not gel as well with the new brand new manager and that means the efficiency in productivity in the project fli
If you chose B, you equate profit with the difference between sales and direct costs. Direct costs are those that we pay for the materials we sell or install plus what direct labor costs us. In the example, there were $4,000 in material costs and $5,000 in labor costs (250 x $20). The “profit” was, therefore, $12,000 - $4,000 - $5,000 = $3,000.
Really? What about that nasty little thing called overhead?
If you chose C) and tried to fill in another number, that’s interesting because the fact is not enough information is given to answer the question properly!
We have NO IDEA OF WHAT OVERHEAD is in the example above; let alone how to account for it in our pricing.
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Abs
In just about every important thing we do in our lives, we look to find authorities that understand the intricacies of what we want to accomplish. If we want to build a building, we turn to an architect. For advice on how to grow a business we seek out marketing experts. It only makes sense that if we have a major project that involves plumbing, we would go for plumbing consulting.Not often understood as the profession within a profession that it is, plumbing consulting is a task that is only undertaken by the most k
Really? What about that nasty little thing called overhead?
If you chose C) and tried to fill in another number, that’s interesting because the fact is not enough information is given to answer the question properly!
We have NO IDEA OF WHAT OVERHEAD is in the example above; let alone how to account for it in our pricing.
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Abs
I am always shocked by how many potential Franchisees go and start the discussions with Franchisors and start to carry out due diligence without first having set some goals for their new business.Imagine going and looking at new cars to buy, test driving them, discussing the finance options before you even decided your basic needs for a car. For instance how many seats do you need, what kind of driving will you be doing long distance or short commuting.So before you start to look at which will be the
Components of a Price:
We can build up a price from its components using information already established in our financial statements. A price can be constructed from its four components as follows:
Direct Cost of Materials
+ Direct Cost of Labor (Plant, Construction, Delivery, Commission or Other)
+ Overhead Absorption (on a proportionate basis to sales) (Indirect Costs)
+ PROFIT
= Sales Price (either unit price or sales dollars)
Normally, we can establish or estimate the Direct costs fairly accurately. But what about Overhead? The simple way to do this is as follows:
Go back to your Income Statement and separate costs (if not done by your accountant – and often they aren’t) into Variable or that which is related directly to sales volume (materials, purchases, direct labor, freight, delivery) and Fixed, typically not related directly to sales volume (Advertising, Computer Expense, Insurance, Office Wages & Salaries, Officer’s Compensation, Payroll Taxes, Rent or Mortgage Interest, Telephone, Utilities, Waste Management and others).
Ratio Fixed Costs to Variable Costs (over a reasonable period, say 3, 6 or 12 months). This is your OVERHEAD FACTOR. If the ratio is .25 for example, it simply means you need $0.25 (25 cents) to absorb overhead for every dollar spent on direct costs.
Now, let’s go back to the example above and assume their OHF to be .25 (25%). Further let’s say they are looking for a 15% NET Profit on sales (to match their budget). The price then is:
Direct Costs - Materials: $4,000
Direct Costs – Labor: $5,000 (250x$20/Hour)
Total Direct $9,000
Overhead Absorption: $2,250 (.25 x $9,000)
Total Cost
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Related Articles:
5 Reasons to Always Tell The Truth In Your Business
Managing People; Living the Values
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