When most people start their business they just set up their shop or their office and start taking in customers/clients, very few of them do a business plan and very few of them work out exactly how much it is to open their doors every day and how many customers/clients this equates to.
A few years ago I was out with a client talking about different things and he proudly told me that he had been doing some quoting over the last few weeks and had won quite a bit of the work.
I asked him how he was working out how much to charge out his workers for. He proudly replied that he had added their hourly rate, superannuation and workcover together and that gave him their hourly figure, so he doubled this figure, then worked out how many hours it would take to do the work, added 10% to that figure ‘just in case’ and that was the way he was getting it figure to quote on.
At that point I felt like a parent about to take back a child’s birthday presents. He really couldn’t see what he was doing wrong and most business owners don’t. They usually are the person who has worked the job for years and so seeing the bigger picture as the business owner is hard for them to do.
So today I am going to take you through three businesses and look at how to cost their quote out figure, or how much it costs for them to just open their doors each day. We will be looking at a Labour Company, a Retail Shop and a Massage Therapist.
This Labour Company cleans out poultry sheds. They have a crew that goes around from shed to shed cleaning them out. They have an Office Lady who does the bookkeeping and administration work, they have a Manager, a Supervisor and a Maintenance Man fixing and maintaining all the vehicles and equipment used.
The Manager, Supervisor, Office Lady and Maintenance Man all work from a shed. The labour crew are driven around in a Mini Van departing from the shed every day. The Mini Van and Bobcat (that is used to clean the sheds) are leased. All the other tools used to clean the sheds are owned outright by the company and so are all the tools and equipment in the shed and office. The Office is at the front of the shed so the rental paid is for both.
So lets start to break this down:
Office/Shed Shared Expenses:
Rent $500 / week
Electricity / Gas $2000 / quarter
Telephone $500 / quarter
Insurances $450 / month
Oils/lubricants $1000 / month
Replacement parts $500 / month
Replacement tools $1000 / month
Maintenance Worker $1000 / week
Stationery $200 / month
Software / computer exp $300 / month
Accountant’s Advice $7,000 / year
Morning tea exp $200 / month
Managers wage $65,000 / year
Supervisors wage $55,000 / year
Office workers wage $45,000 / year
*wages include super and workcover
Mini Van Registration $650 / year
Mini Van Insurance $1,000 / year
Mini Van Fuel $200 / week
Bobcat Registration $500 / year
Bobcat Insurance $600 / year
Bobcat Fuel $250 / week
Supervisors Car Registration $650 / year
Supervisors Car Insurance $500 / year
Supervisors Car Fuel $100 / week
Managers Car Registration $650 / year
Managers Car Insurance $700 / year
Managers Car Fuel $80 / week
*Remember that the maintenance is done in their shed by the Maintenance Man
Wages $5,000 / week
Superannuation $475 / week
Workcover $10,000 / year
Staff Christmas Party $3,500 / year
So now you add all this up and work out how much it costs to open the doors each week, which is $12,284.81 or $2456.96 a day. So this client of mine, needed $2,500 a day to just open his doors. This equates to $312.50 an hour for an 8 hour day. You may find that I have missed some things above, or I have over exaggerated the price of things, but it is purely an example so you can understand what I am saying.
For my client to do his quoting he now has this figure, if he wants to make 50% ‘profit’ on each job then he needs to work out how many hours he believes the job will take – add 10% to that figure to allow for breakdowns etc. and then multiply that figure by $470.00 per hour.
If you have a look at purely his Labourer’s Expenses and doubled it like he said he was, he was only charging out $286.00 per hour. That means that he is making a LOSS of $183 per hour. This is a huge loss for him to be carrying and if he didn’t change things then he would of been out of business in no time.
So now lets look at the retail shop. This guy employs 2 staff to help him and he is open 5.5 days a week. He has a small retail shop that he leases. He owns all equipment used.
Rent $500 / week
Insurance $6000 / year
Electricity $2000 / quarter
Gas $200 / month
Telephone $300 / month
Maintenance $200 / month
Business Insurance $5000 / year
Advertising/Marketing $1000 / month
Bookkeeper $400 / month
Stock Purchases $5000 / week
Freight on Purchases $200 / week
Manager’s Wage $60,000 / year
Staff Wages $30,000 / year
Superannuation $8,550 / year
Workcover $2,000 / year
Christmas party $700 / year
If we calculated all that out and back to a weekly figure, this Retailer would have to earn $8407.12 per week just to open his door and have $5,000 of stock on the floor. That is $1700 per day. Now he knows, that on average his clients spend $50 per purchase, this means that he needs to get 34 customers a day, or 168 customers a week.
Or for a Retailer we can look at it slightly differently and take away the stock purchases. This would mean that before he pays for his stock, he needs to find $3,207.12 a week, or $599.48 a day. Once again, if his customers average a $50 spend each time then the first 12 customers each day are paying the operating expenses before the cost of the goods are added in.
Now lets look at the Massage Therapist. She hires a room from a Chiropractic firm, she has it all decked out looking lovely and uses the best oils and products she can find to make her clients feel special. She does 30 minute, 60 minute and 90 minute massages, but she knows that her sales average $75.00 per client. She owns all her equipment that she uses.
Rent $100 / week
Electricity $50 / week
Telephone $500 / month
Insurance $50 / week
Insurance $5,000 / year
Bookkeeper $200 / month
Marketing/Advertising $500 / month
Stationery $50 / month
Computer & Software $100 / month
Oils/towels etc. $200 / week
Wages / Salary:
Wage $700 / week
Superannuation $66.5 / week
Workcover $300 / year
So after calculating all this out and looking at the figures, our Massage Therapist needs to make at least $1,579.96 a week to cover costs, or $315.99 per day. We already know that she averages $75.00 per client, this equates to 21.07, or 22 clients a week and 4.21, or 5 clients a day to cover costs.
Hopefully you can now see how important it is to work out how much you need to just open your doors each day. This will help you to work out your pricing better and leave you feeling good at the end of the day when you have had the ‘minimum’ amount of clients walk in the door each day, or the quotes you are winning are costed right.
If you know what it costs for you to just open your doors each day, leave a comment below, or send me a message, I’d love to hear from you.
If you would like to work out how much it costs you the click the link below.