How much?
John O'Brien
Community Accounting Plus
www.communityaccounting.co.uk
Is it just a game...
- The American wine market
- Supermarket milk
- Website designers
- Buying a kettle
Price is related to cost, but not exclusively.
What am I worth?
- At the end of this session , I want your honest view on how much CA Plus should charge for one day
of my time for consultancy work.
Overview
- Know your costs
- Know the market place
- Some tools to help you
Know your costs
- 'Direct' costs are easy. These relate to the activity you are considering. If you were not engaged
in this activity, they would be NIL
- Support costs are more tricky. Sometimes called 'overheads' or 'core costs' or 'indirect costs'. They
relate to all your activities.
Examples of Support Costs in CA Plus
- Staff supervision, training, subscriptions
- Senior staff reviewing the files, their own training, supervision, etc
- The equipment used such as IT, phones etc (what about depreciation?)
- Committee meetings
- The heating
- The audit fee
- The redecoration of the office every 5 years
Marginal and Average costs
- This is crucial and at the heart of this issue
- Marginal cost is the cost of doing one more thing
- Average cost is the cost of doing each thing.
- An example .....
Today
| Project
|
A
|
B
|
C
|
Total
|
| Costs
|
|
|
|
|
| direct
|
10
|
10
|
10
|
30
|
| shared
|
4
|
4
|
4
|
12
|
|
|
14
|
14
|
14
|
42
|
|
|
|
|
|
|
| Grants
|
14
|
14
|
14
|
42
|
|
|
|
|
|
|
| Net result
|
0
|
0
|
0
|
0
|
A new project
| Project
|
A
|
B
|
C
|
D
|
Total
|
| Costs
|
|
|
|
|
|
| direct
|
10
|
10
|
10
|
10
|
40
|
| shared
|
4
|
4
|
4
|
|
12
|
|
|
14
|
14
|
14
|
10
|
52
|
|
|
|
|
|
|
|
| Grants
|
14
|
14
|
14
|
10
|
52
|
|
|
|
|
|
|
|
| Net result
|
0
|
0
|
0
|
0
|
0
|
Project B comes to an end
| Project |
A |
B |
C |
D |
Total |
| Costs |
|
|
|
|
|
| direct |
10 |
0 |
10 |
10 |
30 |
| shared |
4 |
0 |
4 |
4 |
12 |
| |
14 |
0 |
14 |
14 |
42 |
| |
|
|
|
|
|
| Grants |
14 |
0 |
14 |
10 |
38 |
| |
|
|
|
|
|
| Net result |
0 |
0 |
0 |
(4) |
(4)
|
What should you have charged funder D?
- Funder D has only paid for 'marginal' cost
- Total support costs were £12 before project D. They didn't go up.
- The 'average' cost of project D could, and should, have included an amount for support costs.
- At £4, with project D, the group wins. When B closes, the group survives.
- At £3, with project D, the group wins, but when B closes, the group still dies.
What can you do now you know the full cost?
- If you know how much time you spend on each activity you can see the cost per hour
- You can move on to ask how you finance this activity...by grants, contracts, fees, fundraising etc
- If you charge fees for some services, you can see the minimum you should charge to break even.
Some theory perhaps...
Know your market - clients
- Ability to pay
- Different prices for different clients
- Price clarity or price confusion - who understands their gas bill?
- Client inertia
Know your market - competition
- Is there any competition
- Local, regional, national
- Talk to them, beat them, copy them,
- Find a unique selling point - quality?
Know your market - strategy
- Discounts to get people on board
- Loss leaders
- Cross subsidy
- Is the aim to cover costs or make profit?
Some tools to help
- These excel spreadsheet templates are available free from caplus.....
email me directly:
jo'brien@communityaccounting.co.uk
Don't forget
- What make our sector unique is that it is that the goal is to achieve our objectives.
- Yes we need to cover our costs - all our costs - but we don't do things just because they are profitable
- So don't sell your soul.
And finally
If in doubt, call it £45 an hour