Full Version: Pricing name badges
From: Dave Jones (DAVERJ) [#27]
9 Mar 2007
To: Doc (GREAT_ATLANTIC) [#24] 9 Mar 2007
I didn't miss the multiple jobs part. I did mention that in the second half of my post. If you have 4 people working 8 hours a day and every minute of every hour they work can be charged to a customer (aka billable hours), which is not likely but possible, then your overhead should be spread across 32 hours of jobs per day.
But you're missing my point. At $0.01 to cover overhead on 40 seconds of work, for 32 hours in a day (4 people all working at the same time on 4 different jobs) that still only brings in $28.80 a day from all the work those people did to cover your overhead. That's only going to cover $576 of your overhead that month. The rest of your overhead is coming out of what you calculated as profit.
I'm not saying you aren't making plenty of money to cover your overhead. I'm saying your calculation of your profit per job is flawed if you don't account for enough of the overhead, and for the extra small pieces of time involved in completing the job, beyond the laser time.
Here's another way to look at it, and why you should charge overhead based on time instead of gross sales. These figures are exagerations, but bear with me. Say you have one type of product that makes you $10 per hour profit and another one that makes you $1000 per hour profit. Lets say that based on dividing overhead by billable time your overhead costs you $1 per hour. If you charge it based on gross sales then you would add $0.01 to the calculation of the $10/hr profit job and $0.99 to the $1000/hr profit job. But then what happens if in a given month you only get orders for the one that pays $10/hr profit? You end up only covering 1% of your overhead. If you had calculated both at the $1/hour overhead then no matter what orders come in, the overhead is covered.
And on your comment about several minutes per badge being extreme. That example was based on doing a couple of badges, not 500. No matter how many you do there is more time involved than just the laser time. For a small order the extra time might be several minutes divided by only a couple of badges. For a large order it might be more minutes divided by a lot more badges, so might only average a few extra seconds per badge. But it's still time beyond laser time that should be calculated into your cost analysis. Your cost per badge is quite different if you get an order for 2 badges vs an order for 500.
From: Dave Jones (DAVERJ) [#28]
9 Mar 2007
To: PenTrophy (PENINSULATROPHY) [#21] 9 Mar 2007
The meter doesn't just start running when the customer comes in the door. It's always running. If you spend half your time taking orders, buying materials, etc... and the other half engraving stuff, and you only charge for the actual engraving time without somehow calculating the rest of the time into the cost, then you'll go broke. Even faster if you have to pay somebody else to take the orders, buy materials, etc...
You need to figure all of that extra time as either part of the job or part of the overhead. Either way it needs to be calculated into the cost of that job.
I've seen a lot of small companies fold where the peope were working 60 hours a week, had jobs coming in, but ended up with nothing in the end because they weren't calculating their true costs into the bids/quotes.
From: Doc (GREAT_ATLANTIC) [#29]
9 Mar 2007
To: Dave Jones (DAVERJ) [#27] 9 Mar 2007
Ahh! It just dawned on me where the disconnect is with this thread. The $.01 calculation isn't an overall assignment based on time, or part of a formula to determine pricing....it was simply a product of this particular item based on its total cost in backing into the justification of a retail price. That overhead assignment changes for each product value in this direction. It wasn't meant to represent an absolute in determining pricing for all products, but rather as a component for the overall profitability of this one item at $5.25. We've essentially gone in two separate directions in this discussion.
In other words, we don't assume that the $.01 covers a specific time in production....it assumes that given fixed costs versus total gross revenue, $.01 of the $5.25 represents overhead. That factors all production at different margins, price points, production requirements, etc. And depending on an operation's total gross sales, that number either increases or decreases.
In the larger picture, outbound pricing based on overhead is absolutely necessary....and I certainly wouldn't attribute only $.01 to the equation regardless of production time, given our fixed costs.
From: Peter [#30]
9 Mar 2007
To: ALL
Hi Doc,
Yeah Adeaide is only a smallplace. It certainly isnt Manhattan. We have only 1,250,000 people here.
But at the sametime, we have a plethora of engraving companies.
We have never subscribed to " cheaper means more, business school of economics"
Capitalism , democracy, competition and the magic ingrdient...Marketing are well and truly alive here in Australia..
regards
Peter
From: Doc (GREAT_ATLANTIC) [#31]
9 Mar 2007
To: Peter [#30] 10 Mar 2007