Breakeven Cost Per Hour
The key to setting your selling price correctly is knowing your costs and charging for them.  The total of all your business costs divided by the total number of hours that your bill your customers is your Breakeven. So, there are two items in this process:
1. Total Business Costs
2. Hours billed to your customers also known as Productive Hours.

Total Costs are sometimes easy to find.  If you have a good accountant, he may be able to generate a report for you that lists everything you need.  Or, if you use an accounting program, and if you have it set up right, and if you know how to do it, you can generate your own report that will list and total all of your costs.  Otherwise, start with your business checkbook and - using pencil and paper or a spreadsheet program - manually add up all of your expenses for some period of time.  For Numbers Cruncher users, this is the process that happens when you fill in the Budget form.

Next, total up all of your field employee costs.  This includes salaries, benefits, taxes, bonuses, etc.  Add this numbers to your other costs to get the Total Business Cost.

The time period should be selected so you are sure to capture all of your costs.  Some costs, like insurance and membership dues, may only happen once a year, so don't forget them.

Next you will need to total up all the hours for all your field employees that were billed during that time period.  If you use time cards, this could be an easy task.  Or, if your invoices include a billed  time factor, review them and add up the hours billed.  If you are using NSPG Flat Rate, your Tasks have a time factor built into them, so your invoices will allow you to know the amount of time billed on each job.  These steps are combined on the Tech Pay form in Numbers Cruncher.

Here's how you get your Breakeven Cost per Hour from the Total Costs and Productive hours that you calculated using the methods explained above.  Divide your Total Costs by your Total Productive Hours to get your Breakeven Cost per Hour.

Breakeven = Total Costs ÷ Total Productive Hours

Remember that Productive hours are the hours you actually bill to a customer.  They are NOT the numbers of hours you pay your field employees for.  If you are doing service work, it's just about impossible to bill 40 hours in a 40 hour week.  Most companies bill between 20 and 30 hours.

Set Your Selling Price
To set your selling price, you need to add your profit to your Breakeven Cost per Hour. 

Selling Price = Breakeven + (Profit% X Breakeven)

This is a simple enough concept, but it involves two separate calculations and can lead to confusion. So here's and easier way to calculate your Selling Price.

Selling Price = Breakeven ÷ (1 - Profit%)

Let's say your Breakeven is $200.00 (see Numbers Cruncher example below) and your profit target is 20%. Here's how the Selling Price calculation would look:

Selling Price = $200 ÷ (1 - 0.20) = $250.00

This would yield you a 20% profit of $50 per productive hour.  You should check and adjust this number on a regular basis.  Your costs change regularly, so you need to be sure that your Selling Price continues to yield the profit you expect.

Whether you use Numbers Cruncher of pencil and paper, you MUST accurately set your own selling price.  Understanding how it works will allow you to make the right decisions on setting your prices at a level that covers your costs and earns you the profit you need to stay in business and serving your customers.

Measure Monthly, Adjust Quarterly
 & Achieve Annual Profit Goals

Call us at 800-841-8542 to schedule a Numbers Cruncher Review so you can be sure that you are making the profits you need every day.       

If you have a free NSPG software demo CD, you have the full version installation of the NSPG Flat Rate software.  Insert the CD and choose the Full version of the software to begin the installation.

Call us at 800-841-8542 to purchase the software.  Then you can start the program.  Enter the registration code, and download the latest version.  We'll even ship you a printed copy of the user manual.

You can be Flat Rating in about an hour.

Earlier this month I had the pleasure of meeting many of you at the Nexstar Money Masters in Boulder Colorado. We got to spend an afternoon with Tom Robichaud at Precision Plumbing, Heating & Cooling.

Precision Plumbing, Heating & Cooling is a $4 million in sales Nexstar member that has had an average growth rate of 100% over the last 4 years. The company was 100% new construction and has converted to 100% service. They have been voted "Best of Boulder" three years in a row and received the Better Business Bureau's 2003 Gold Star Award.

Thanks Tom.

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