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Answer Upon - Pricing for Bottom Line Profit
An organization that has a large number of employees and a steady flow of cash will benefit by becoming a nonprofit corporation. Incorporating will save employees from paying the debts of the organization, and will increase the organization’s chance of getting government funds.The first step in incorporating a nonprofit organization is to file nonprofit articles of incorporation with the relevant clauses on tax exemption duly filled in. The next step is to apply for tax-exempt status at the state and federal level by
Ratio Fixed Costs to Variable Costs (over a reasonable period, say 3, 6 or 12 mont
You probably read the title of this article wondering why you would want to become a mortgage broker in Indiana? Or you might already have a great reason to become a mortgage broker and you are searching for information on how to become a mortgage broker.I am going to give you my top 5 reasons to become a mortgage broker no matter where you are, and I will explain why Indiana is such a great choice for mortgage brokers.Reason #1 – The mortgage business is very lucrativeThink about it this way, a loan o
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 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 month
It’s always a race for traffic, this thing we call internet marketing. The faster we are able to generate visitors for our websites, the more visitors we are able to garner, the more sales (or clicks, if such were the case) we can have. Hence, the statement “traffic is the lifeblood of any online business,” which rings a thousand truths.Now, there are many, many established ways by which you can generate traffic for your website. Article marketing, search engine optimization (SEO), traffic exchange, mailing lists,
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 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 mont
There is a big misconception about medical billing and the people who do the billing. The layman thinks that these people have no special skills and are just your everyday run of the mill office person. This couldn't be further from the truth. A medical biller needs to be extremely sharp with all the rules and regulations attached to medical billing. And when it comes to billing oxygen claims, it is even more critical that the biller be on the top of his game. In this installment on medical billing and the electronic t
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 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 mont
Sometimes changes that take place in the workforce require a change in direction for your career. If the type of job you have traditionally performed is no longer being sought by employers, you will have to face the problem of changing your entire career focus.When this happens, many people feel like they have to start at the bottom and work their way up the ladder again from nothing. In many cases, it may be necessary for you to consider starting in some position that does pay less than your current one, but many
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 mont
Loss Prevention, Retail Security, Electronic Article Surveillance. These are all terms commonly bandied about while most people do not know what they mean. Loss prevention industry insiders may or may not know the specific definitions of these terms. Many LP professionals say these terms again and again with out truly thinking about what it is they are saying. In order to understand these phrases combined meanings it is useful to take a look at there meaning on a word by word basis.Loss pr
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 Costs: $11,250 ($9,000 + $2,250)
Profit $1,985 (estimated)
Price to Make 15%: $13,235 ($11,250 + $1,985)
Profitability Check: Profit%=Profit/Sales=$1,985/$13,235 = 15% √
But they actually sold the job for $12,000, so their real net profit at the bottom line was = ($12,000-$11,250)/$12,000 = $750/$12,000 = 6%.
But, You Say, I Can’t Price That Way, the Market Won’t Bear It!
Nevertheless, this is the way to relate pricing to bottom line profit, either actual or proposed. If you can’t achieve the price that results in a reasonable (and budgeted) profit, then you, as owner/CEO/President MUST: lower the cost of your products by better purchasing or more efficient manufacturing, lower your overhead, change the markets in which you participate or change the offer (more value).
Just like ignorance of the law is no defense, neither is lack of knowledge on how to price for profit an excuse to accept low profitability.
The arithmetic above only tells you WHAT you have to do, not HOW. The how is left to your business and marketing plans.
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