Forum di prova - When someone asks you Mims - 09 Nov 2019 10:15:55 Oggetto: When someone asks you
When someone asks you
, or you ask yourself, what your ?profit? is on a product, on a project or on a job, how do you respond?
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 months). This is your OVERHEAD FACTOR. If the ratio is .25 for example, it simply means you need .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$20Hour)
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 ownerCEOPresident 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.
The Importance Of Self Discovery; Who Are You? Self Help Articles | April 2, 2012
What do you think about yourself? How do you rate your worth? What you are fully capable of doing is linked with the discovery of who you are. Who you are will determine how you live.
"For as a man thinketh in his heart, so is he" - Proverbs 23 : 7. What type of thoughts do you harbor about yourself? What you are fully capable of exhibiting is tightly linked with the discovery of who you really are. To a great extent, who you are will determine how you live. The biblical character, Esau, will be used as a point of reference. He didn't know the implication of the wrong decision he was intending to take a little while later. Though alive
, he wasn't aware about what he would have truly represented. As a result, he sold his birthright for a plate of food. What a tragedy!
How you see yourself will determine how the enemy will see you and treat you. If you see yourself as a lion, the devil can't treat you as a dog. When you see yourself as an eagle, no devil can treat you as a chicken. As long as the prodigal son in the bible didn't realise he was the child of a wealthy man, he continued to eat with pigs, but as soon as he realised reality, his adversity ended. Discovering your identity, is an answer to adversity. Devils oppress people with all types of negativity by merely taking advantage of their ignorance. If you know your full capabilities, they wouldn't dare cross your path.
The easiest way to discover yourself and know what you were made for, is by asking your Maker because nobody knows a product like the manufacturer. Who are you? The knowledge of yourself is very important. In the.
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