Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
If You Can’t Measure it,You Can’t Manage it
Daniel S. Gordon, CPA
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Overview
• Can We SURVIVE this economy?• Let’s Grow Our Business – What Resources
are Required?• Let’s Measure:
– Financial Performance– Marketing Performance– Sales Performance– Operational Performance
• Case Study: Pricing your Pest Program for Profit• Your Next Steps
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Can we survive this economy?
• Major events of 2008
– Stock Market Collapse– Housing Crisis– Record Prices at the Pump– Implosion of the Auto Industry– Meltdown of Financial Services– Exodus of Manufacturing– Our Great Nation is involved with 2 wars
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Can we survive this economy?
• But hold on – NOT SO FAST!!! We can still succeed…
• America is the strongest economy in the world!
– Spending doesn’t stop because we don’t have money
• We go into debt to get what we want. – It’s not good for the long term but it will help to pull us out short term
• We are a nation of spenders helping to keep the economy moving– Most of the rest of the world are savers
Contd…
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Can we survive this economy?
– Americans find ways to put “stuff” with consumers.
– Never Count out The U.S. Consumer!!
• Can’t afford a vacation home? Carve one up… buy a time share
• Can’t afford to buy a car? Lease one
• Don’t have money for merchandise at the department store? Get a credit card at the cash register and receive a discount
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Can we survive this economy?
• What ADVANTAGES do we have as PCOs?
– Fuel Prices have dropped significantly
– Our Services are need based and sometimes mandated by law
– In most areas of the country we are seasonal, we are used to managing downturns. The winter comes every year – doesn’t it?
– Long before the recession, experts have predicted the U.S. will become a service economy. Here we are in service businesses and we have a big head start!
– No matter what your political views, you can’t argue the fact that the government is implementing the largest stimulus program in history - over 750 billion dollars. This money will ultimately trickle down.
– For the most part our costs are variable, we can make drastic changes quickly (not always an easy decision but it can be done)
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Can we survive this economy?
• Can we survive?
YES… and the strong companies
will emerge STRONGER!
• Is it going to be tough? Yes• Is it going to take a long time? Possibly• Is time going to pass no matter what we do?
Yes, so we should get to work!
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
How do we weather the storm?
• PREPARE for the recession to be long and deep and then build flexibility to adjust when needed
• Make sure you have TIGHT ROUTES. You may not be able to raise prices but tight routing has the same effect as raising prices
• NEVER SELL UNPROFITABLE WORK on the basis of “its steady work”… Shrink your business if you have to.
• Make sure you have an accounting system that gives you accurate and timely INFORMATION
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
• MEASURE the results of all your programs and increase the profitable services and decrease the unprofitable services
• Increase your COLLECTION efforts – make sure you’re A/R is healthy and collectable
• Tighten your CREDIT TERMS – shut customers off if needed
• Increase your SALES & MARKETING effort – be effective!!
• Get ready for the upturn!! Create your 5 year plan; and EXECUTE!
How do we weather the storm?
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Why are we in Business?
To maximize the value of Our
Business…. Period !
There is no other reason !!
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
In Maximizing the value of our business we:
– Create a great Place to Work
– Increase Salaries & Benefits
– Create Job Security
– Do business in a Socially Responsible Manner
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
First lets go over how we run a successful Pest Control Firm
– The Pest Management business model is Simple (Not Easy But Simple)
– We are in a Service Business and Sell our Time.
This time that we charge for includes:
– Diagnosing the Problem– Providing a solution– Setting the Customer up on a Service Contract– Doing the Same thing Over and over until you have
built a route or several routes.
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
• The Customer List (Your most Valued Asset)
– Long Term – Can be compared to machinery in a manufacturing business:• Must be “well oiled” by providing great Service• Routes must be tight allowing for the greatest output from
this machine
– Short Term - Can be compared to a life insurance Salesman setting up a book of renewable policies that generate current income.
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
• You need a Plan…
The plan must focus on growingyour customer list as well as selling more to existing customers
This is the Asset that will spit out the profits.– Remember - The PCO business is not a high margin
business. Rather it is a moderate margin business where you generate high profits from customers that use your service on a scheduled recurring business
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s Grow Our Business
Assume 100% retention
Expansion Goals: Double Revenues over 4 Yrs (20% per Yr)
Cost To Acquire 1 New Customer (average): $250.00
Target Annual Revenue Per Customer: $500.00
Future Customer Acquisition Requirements
Year Revenue # Customers Current New
Customers Cash
Projection Needed # Customers Required Requirement
Current Yr $500,000 1000 1000 0 $0
1 $600,000 1200 1000 200 $50,000
2 $720,000 1440 1200 240 $60,000
3 $864,000 1728 1440 288 $72,000
4 $1,036,800 2073.6 1728 345.6 $86,400
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Money Requirements
If more People or Equipment is Required For Expansion, How does it get Paid For?
Several Options Exist:
Through Daily Operations & Cash Flow
Through Financing (i.e Bank, Finance Companies, etc.)
By Giving Up Equity (i.e. Silent Partner, Not so Silent Partner, Joint Venture)
Let’s Grow Our Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Financial Performance – Measuring The Health of Our Firm
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
What Are Financial Statements?
Financial Statements are the Box Scores
in the game of Business.
They are the culmination of the accounting process. They are used to convey a concise picture of the profitability and financial position of your company.
Financial Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Revenue - Broken up by department with Recurring & Non-Recurring Revenue accurately displayed
Direct Costs - All cost associated with putting a truck on the road & performing service
Gross Margin - Revenue minus Direct Cost
Sales & Marketing - All cost associated with sales and marketing function
A well-designed Pest Control Profit & Loss Statement includes:
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
A well-designed Pest Control Profit & Loss
also includes !!
G & A Expenses - The cost associated with running the office. Usually these costs are fixed with regard to transacting business up to a certain level EBITA - Earnings before Interest taxes & Amortization
IADT - Interest, Amortization, Depreciation & Taxes
Net Income - Net Performance of the Business
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Profit & Loss Ratios & Benchmarks
– Gross Margin
– Technician Labor cost as a percentage of revenue
– Chemical Cost as a percentage of revenue
– Selling Cost as a percentage of revenue
– Office Labor as a percentage of revenue
– Other G & A as a percentage of revenue
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Drilling down in Profit & Loss Statement
Why is it so important to setup a P & L using the approach
described?– It allows us to make accurate conclusions about how our management staff is executing our business strategy.
– It allows us to isolate revenue types that will add to the value of our business
– It allows us to isolate expense types so that we can implement cost controls
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
The Balance Sheet allows us to see the prior results of our operations plus any financing activity that has taken place.
Drilling down into a Balance Sheet
The P & L tells that how we are doing in terms of profit & the B/S tells us what we have as the results of those profits.
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
What is important about B/S?
– CASH!
– Accounts Receivable
– Equipment
– Credit Line & Loan Balances
– Accounts Payable
– Owners Equity
Drilling down into a Balance Sheet
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Rating our Accounts Receivable
– We can age our Accounts Receivable
– Current 30 days 60 Days Over 90 days with percentage of Total
– We can try to improve those percentages on monthly basis
– We can see how close we are keeping our customers within our terms using a ratio called No of days sales in receivables
– Calculation: AR balance/(Cumulative Sales/Cumulative days)
Drilling down into a Balance Sheet
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
– Calculation: (AR balance/ ( Cumulative Sales / Cumulative days)
Drilling down into a Balance Sheet
MonthAccounts
ReceivableCumulative
SalesCumulative
DaysAR Collection
(In $$) (In $$) (In Days)
Jan 92,978.71 141,979.65 30 20
Feb 99,344.19 229,884.19 60 26
Mar 118,261.00 349,186.84 90 30
Apr 127,553.67 469,772.91 120 33
May 119,382.39 573,908.18 150 31
Jun 110,584.97 681,817.53 180 29
Jul 114,392.45 781,463.98 210 31
Aug 120,091.32 897,158.05 240 32
Sep 134,356.95 1,009,201.90 270 36
Oct 108,142.62 1,125,025.47 300 29
Nov 107,366.28 1,234,987.85 330 29
Dec 116,399.87 1,294,946.77 365 33
Average Collection Period
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Liquidity Ratios
A Liquidity ratio is one of the benchmarks that banks, vendor creditdepartments, and others used to determine our ability to pay bills. The two that are most commonly used
Current Ratio= (Cash plus AR)/current liabilitiesQuick ratio= Cash/AP
A Ratio over and above 1.0 means we are healthy. A ratio of less than 1.0 means we have cash flow issues.
Drilling down into a Balance Sheet
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Current Ratio= (Cash plus AR)/current liabilities
Drilling down into a Balance Sheet
So the rows colored in grey are healthy as the ratio is 1.0 or greater than 1.0
Month CashAccounts
ReceivableCurrent Assets
Current Liabilities
Current Ratio
(In $$) (In $$) (In $$) (In $$)
Jan 15464.42 146,296.26 161,760.68 243,380 0.66
Feb 12877.43 132,795.59 145,673.02 241,993 0.60
Mar 18164.63 153,743.82 171,908.45 244,707 0.70
Apr -30861.21 182,235.61 151,374.40 234,523 0.65
May 19080.04 160,188.85 179,268.89 255,731 0.70
Jun 20140.13 163,733.64 183,873.77 248,087 0.74
Jul 13273.08 166,878.43 180,151.51 240,763 0.75
Aug 23384.19 197,268.87 220,653.06 258,781 0.85
Sep 31285.09 196,236.65 227,521.74 250,031 0.91
Oct 81064.63 154,337.98 235,402.61 230,781 1.02
Nov 58021.88 179,616.14 237,638.02 211,383 1.12
Dec (27,200.97) 314,572.16 287,371.19 288,739 1.00
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
• We want Growth
– How Much? Over What Period of Time?
– What Resources Will We Need? • Equipment, People, Money?
– Where Will the Growth Come From?
– New Customers, or More Business from Existing Customers?
– Is Our Current House in Order to Achieve this Growth?
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
• Define Growth – Set Goals
– Example of a Goal
• I want to take my Business from $500,000 in Annual Revenue to $1,000,000 in Annual Revenue over the next 4 Years, increasing my profit margin from 12% to 20% for the same period.
– Not an example of a Goal
• I want to get Bigger.
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
• More Business From Existing Customers
• Your Customers Already Know You
– The Cost associated with expanding your relationship is significantly less than new customer acquisition.
– An excellent way to guarantee yourself a predictable revenue stream while allowing your customers to do predictable expense budgeting.
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
• In defining your overall strategy, the MARKETING MIX concept is extremely useful.
It is broken into four categories known as the Four P’s of Marketing:
– Product
– Price
– Place
– Promotion
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
PRODUCT - From a marketing prospective our product is our service. We need to define:
• The Quality• The Features• The Services• The Warranties etc.
• From a standpoint of practicality, it makes sense that as we grow our business we need to be uniform in our Service Plans.
• As our customer list grows, it will become extremely difficult to manage a business where every customer’s service is different. Thus, in defining our services we should design a core group of services that are standardized.
• All of our technicians can be trained to work using standardized methods. In addition our office staff is not faced with differing problems with each customer.
STANDARDIZATION OF SERVICES IS KEY!
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
PRICE– Pricing is extremely important.– You need to price for profit.
Remember our discussion on Breakeven Analysis…
Understand how high the bar is
that you are trying to reach!
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
PLACE – Service Area Defined - In designing our business we need to define
our service area. Again, if you go outside of your service area, you need to charge a lot more money in order to account for the travel time.
– The most profitable pest control companies have very well defined service areas. In fact, each office has sub service areas for each route. Sound routing methodology needs to be employed.
– At this point we should note that you should have well-defined service areas that you will not breach.
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Marketing Math for the PCO
PROMOTION
– This is getting the word out. It’s is not my intention to speak about all of the promotional concepts of marketing a pest control company.
– However, we should be able to track our advertising in our computer system and generate reports that will tell us which advertising works and which does not.
• Promoting your company through advertising is the single most important thing that you can do to build your company.
• However, too much of the wrong type of advertising can sink your company quickly. By tracking which advertising is working through your computer system, you can build successful advertising campaigns that deliver RESULTS.
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
There are many schools of thought on how a sale should be made. Some sales techniques work better depending on the personality of the sales person.
Some Sales people Sell management on why Sales can’t be made
The best thing about what we do as accountants, is that the numbers don’t lie - no matter which Sales technique are used.
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
What are the important data points:
– Number of leads received
– Number of leads Closed
– Number of proposals written
– Dollars Proposed
– Dollars Sold
– Closing Percentages
– Follow Up actions Including dates
– Commission’s Earned by Sales Staff
– Base Pay For Sales People
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Number of leads Received/Closed
Sometimes we draw Conclusions based solely on the numbers.
We need to distinguish between creative leads and inbound leads. as the ladder will yield much higher percentages.
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Batting Average = # Leads Closed # Leads Received
Pitch Efficiency = # Proposals written # Leads given
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Sales Dollars Efficiency = # of Dollars Sold # of Dollars Proposed
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
– Using the proposal Dates and follow-up dates we can age our proposals, last contact dates and make estimates of likeliness of Closure.
– What we obviously find is the older the proposal the less likely we Close it.
– What happens if we introduce telemarketing?
Sales Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Sales Compensation as a percentage of Sales
Sales Performance
Base salary + Commissions Total Sales
=
AND LAST BUT NOT LEAST……
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Increase Sales
Lower Expenses
Effective Routing
HOW TO…
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Profitability
High Revenues Low Revenues
High ExpensesAverage Profitability
Poor Profitability
Low ExpensesExcellent Profitability Average Profitability
Revenue
It is affected by two factors:
Expenses
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Routing will affect both
Revenue and Expenses.
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Technicians are paid an hourly rate.
Technicians are compensated as a percentage of their route
The Single Largest Expense for a Pest Control Company is
Pest control companies for the most part compensate their technicians one of two ways or a combination of both:
LABOR
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Technicians are paid an hourly rate.
This rate climbs by 50% (overtime) after the technician works 40 hours in any given week. and or;
As a percentage of the dollar value of the jobs that they complete
Technicians are compensated as a percentage of their route
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
To Increase Profitability We Need to Increase Efficiency
(Fit More Work into Less Time)
This Increases Profitability by Increasing Total Dollars of Profit.
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say we have a technician that earns $15.00 per hour.
Further, let’s say that he can complete one job in an hour that produces $50.00.
In this case our labor percentage is 30% (15/50 = .3).
This means for every $100.00 of revenue we have a profit of $70.00 (ignoring all other costs)
Using Our Technician Who is Paid Hourly
Example 1
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say we have a technician that earns $15.00 per hour.
Further, let’s say that he can complete two jobs in an hour that produces $50.00 each or $100 total.
In this case our labor percentage is 15% (15/100 = .15).
Example 2
Using Our Technician Who is Paid Hourly
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
This means for every $100.00 of revenue we have a profit of $85.00 (ignoring all other costs).
By fitting more work into one hour we have been able to increase our profit by $50.00 per hour.
Here we have increased our revenue in dollars and decreased our labor expense as a percentage of revenue.
Using Our Technician Who is Paid Hourly
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say we have a technician that earns 25% of dollars produced. Further, let’s say that he can complete one job in an hour that produces $50.00.
In this case our profit is $37.50($50.00 – (25% x $50.00) =$37.50) (ignoring all other costs).
Using Our Technician Who is Paid A Percentage Of His Route
Example 1
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say we have a technician that earns 25% of dollars produced.
Further, let’s say that he can complete two jobs in an hour that produces $50.00.
In this case our profit is $75.00
(($50.00x2) – (25% x $100.00)) =$25.00) (ignoring all other costs).
Example 2
Using Our Technician Who is Paid A Percentage Of His Route
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Using Our Technician Who is Paid A Percentage Of His Route
By fitting more work into one hour we have been able to increase our profit by $37.50 per hour from $37.50 to $75.00 dollars.
In this case we increased the revenue by $50.00 per hour while holding our labor expense constant as a percentage of revenue at 25%.
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Utilization
One of the most important benchmarks in judging how efficient your routing is called Utilization. Utilization is a calculation that CPA firms and law firms use to see how productive their accountants and lawyers are at billing their time.
However this calculation fits our industry perfectly. Quite simply, utilization is the following fraction:
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Total Technician Hours Spent at All Stops During the Time Period
_________________________________________________
Total Technician Hours Clocked in (Paid Hours) During the Time Period
Utilization
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say that your technician spent 30 hours at various jobs doing actual work for a one week period.
Let’s also assume that according to his time card he was punched in and paid for 50 hours. His utilization would be 60% (30hrs worked / 50 Hours Clocked in).
This means that he was producing revenue 60% of the time he was clocked in.
Example
Utilization
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Let’s say your average dollar per hour on your accounts for the day is $75.00. With a 60% utilization you’re actually taking in $45.00 per hour. If your technician clocks in 8 hours for the day, he will produce $360.00 for the day ($75.00 x 60% x 8hrs). If his utilization is 75% he will bring in $450 ($75.00 x 75% x 8hrs). If he is 40% utilized he will bring in $240 ($75 x 40% x 8hrs). These numbers are using the same $75.00 per hour but varying the utilization percentage.
Example Continued…….
Utilization
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
This point illustrates the fact that there are two ways of increasing daily revenue:
Utilization
Raising your prices (dollars per hour). This is not always feasible.
Increasing your utilization by making your routing more efficient.
Operational Performance
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
The PMP Pricing Model
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
The Pest Management Pricing Model
Money
This is an hourly charge for our service that covers our costs and allows us to make a reasonable profit. How do we know what that hourly rate should be? Accountants calculate this number using a techniquecalled BREAKEVEN ANALYSIS.
It is based on two variables:
Time
The service time that it takes to fulfill the obligation of eliminating the customer’s Pests under the service program. This includes treatment time and call back time
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Break-Even Analysis
Break-Even point =Fixed Costs
Gross Profit per Hour.in units (service hours)
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Definition
Fixed Costs
Any cost that remains constant at any volume of business
(i.e. Rent, Advertising, Utilities, etc.)
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Variable Costs
Costs associated with producing one unit of our service. For our purposes, one unit of a service will be one hour of service. Thus, variable costs are those costs that rise and fall based upon the number of hours that we provide service.
Examples Hourly pay for your employees, Workers Compensation Insurance, Material Costs, etc.
Definition
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
Gross Profit
The difference between the price charged per Unit (Hour of Service) and the Variable Costs.
Example
If we bill our service at $100 per hour and a technicians gets $20 per hour and all other variable costs associated with providing that hour of service are $35, our gross profit would be $45. (figured: $100 billed less ($20+$35) variable costs).
Definition
Gross Profit
Gross Profit
% o
f G
ross
Rev
enu
e
Gross Revenue Cost of Goods Gross Profit
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
What Is My Breakeven Point?
=Fixed Costs
Gross Profit per hour. Breakeven Point in Units (Service Hours)
Break-Even Analysis
Fixed Cost
Gro
ss P
rofit
/Hr
Fixed Cost Gross Profit/Hr
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
If rent, utilities and all other fixed costs are $10,000 and we use our $45.00 gross profit per hr example than our breakeven point is 222.2 hours of service at a $100 per hour selling price.
After 222.2 hours of service we will start making a profit of $45 per hour. You see the gross profit contributes to paying the fixed costs. Once the fixed costs are paid, the gross profit contributes to bottom line profit. This is the reason some accountants call gross profit the contribution margin.
Example
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
$10,000 Fixed Costs$45.00 Per Hr Variable Costs
222.22 Hrs to Break Even=
Gro
ss M
arg
in
Break-Even Point
Sponsored by
www.pmpwealthbuilders.com www.pcobookkeepers.com
However, at various sales levels certain fixed costs rise (i.e. after a certain sales level, a new piece of equipment might have to be added, thus the cost of using that piece of equipment must be added to fixed costs).
Therefore, figuring your breakeven point can sometimes be confusing.
Is it Really That Simple?
YES!!!!
Recommended