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Member You - Pricing for Bottom Line Profit
Depending on whom you ask, you will get told many “truths” about advertising. The question I have for you today is this – “Is the only bad advertising, no advertising?”Before we begin, it might help us to agree on what advertising is, so here’s one definition:“Advertising is the non-personal communication of an individual’s paid persuasive information regarding products, and or services via various media.”In other words, someone is trying to “sell” us on something – be it a product, or a service, or jus
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,
Great Human Resource professionals add value to any organization. Recruiting and retaining star performers, building a productive workforce, coaching managers to perform at higher levels, ensuring that the organization stays compliant, and raising the bar on performance are what HR brings to the table. HR can be the difference between success and failure in an organization. But what can an organization do if they don’t have an HR professional on staff? This is the predicament faced by many companies. Anne Craigs of the
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,
Some people are workers and are happy being told what to do and get paid from their steady job. Example is being a server, construction worker, sub-contractors, landscpers, hairstylist, etc. Professionals who are content to being in a routinized environment day in and day out. There are people who are supervisors. Supervisors in which they chose to supervise their chosen profession in return for salary. These are your workers who have advanced into providing employers the eyes and ears of their company. Most of thes
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,
Years ago, the popular website at www.RonKaufman.com was upgraded to more powerful servers.The site includes a library of articles about service quality, partnerships and customer-focused culture. You can view these online, or have them sent to you by e-mail autoresponder.On the old server, requested articles were sent via e-mail from robot@RonKaufman.com.On the new server, requested articles were sent from librarian@RonKaufman.com.This is a tiny difference (robot vs. librarian), but it speaks to
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,
When selling your own business, it is critical that you understand the points in the deal process when your attorney and CPA should get involved. The first point to make is that both of these parties must be involved in your selling process. You should think of them as a part of your “Exit Strategy Team.”Your CPAYour primary goal with your CPA is to minimize the tax impact of your sale. Small changes in deal structure can make large differences in your after-tax cash from the sale, or
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,
The ability to lead, persuade and influence are integral skills for effective leaders. The capability of telling a story that inspires, motivates and informs is an essential part of this process. In an age of convergence in the media and increased scepticism over traditional communication methods, a new breed of leader is emerging that sees the media as an opportunity and not a threat. They use the media in a pro-active way to build their community or organisation's image, reputation and identity.Business Review Week
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
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