Business and Finance Reviews

Posts Tagged ‘Indirect costs’

Factors considered in the determination of prices
When there is a respite service prices, slightly more than the price of the product. “Price of the product is more objective. The price of services is more subjective so that there are gray areas, “said Toftoy. “The price is both art and science.” Here are the factors which, according to the experts you should consider when trying to decide what price to charge for the service:

The cost plus pricing. The standard price method in the business of trying to first determine the cost of manufacture of the products or, in this case, provide services, and then add an additional amount to represent the desired profit. To determine the cost, You need to figure out the direct costs, indirect costs, and fixed costs. “With the approach cost-plus, the thing to remember is that if You pay someone $ 11 per hour, You may think you need to charge $ 11 per hour for the services they provide, but You have to factor in all of Your expenses,” said Jerome Youngster, a Professor of Finance at Florida State University and outreach Director Jim Moran Institute for Global Entrepreneurship. The expenses include part of rent, utilities, administration fees, and other general overhead costs. “When I made a deal to sell the service,” he said, “I have to make sure to cover all costs.”
The price of competitors. You should be aware of what the competitors are charging for similar services in the market, Osteryoung said. This information can come from competitor websites, phone calls, talking with friends and colleagues who have used the services of a competitor, the published data, etc “I don’t think it’s a good idea for any entrepreneur to compete on price if You can avoid it Compete on service, atmosphere, or other factors that differentiate You,.”the word Osteryoung. If You have to compete on price to win customers, you might ask yourself whether the customer will be true to You if they find someone who offers a service at a lower price. You want to build long term relationships in the market. “You need to convince customers that you are giving them tremendous value in terms of service and quality,” said Osteryoung. “You just have to realize what the competition is charging.”
Perceived value to the customer. This is where a lot of subjectivity that comes when setting the price for the service. If You have a product, you may decide to use the keystone pricing, which generally cost wholesale and doubles to come up with the price to charge and account for your benefit. With the service, You cannot always do that. For your customers, an important factor in determining how much they are willing to pay for the service may not be how much time you spend on providing this service, but ultimately what the perceived value of Your services and expertise to them, Osteryoung said. That is where price becomes more of an art form

Calculate Your costs
Before You set the price for the services your company provides, You need to understand the cost of providing these services to Your customers. The U.S. Small Business Administration suggested that the production cost of any service consists of three parts:

Material cost. This is the cost of goods you use in providing services. A business will need to clean the cost factor paper towels, cleaning solutions, rubber gloves, etc. A car repair business will count to the cost of supplies, such as spark plugs, brake pads or is being installed by the service. You may want to enter a list of materials with Your estimate in bidding the job.
Labor costs. This is the direct labor cost you hire to provide services. This will be the hourly wage clean-up crews and/or a portion of Your salary and benefits of mechanized while they provide services to your customers. SBA recommend using time cards and time to keep tabs on the number of hours of work involved in providing any service to customers.
Overhead costs. This is the indirect costs to your business in providing service to customers. Examples include labor for others who run the company, whether an Administrative Assistant or human resources personnel. Other overhead costs including your monthly rent, taxes, depreciation, insurance, advertising, Office supplies, utilities, mileage, etc. show that the number of SBA’s reasonable of overhead costs should be charged for any service performed, both in hourly rate or a percentage. One important thing to note: don’t just depend on the figures from last year to determine Your overhead. You need to put a customer includes the cost of the fare You at this time, including large salary to employees, inflation, etc.