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Are You Making Money in Today's Market? |
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Often portable sanitation contractors are quick to make price adjustments or offer discounts or credit arrangements as an added incentive to use their company rather than a competing firm. Unfortunately, however, most of them do this as a knee-jerk reaction to increasing financial pressures and competition without a full knowledge of the true results that these actions will bring. Discounts and “special prices” are always a big favorite for getting extra business right? By lowering the price a bit you may cut into your profit margin a smidge, but it’s still better to have the additional cash flow, wouldn’t you think? Well, figures reveal that (assuming you want to maintain a 20% profit margin, which is not all that great) a modest 5% cut in your prices will actually require that you increase your volume by a full 33%. In order to sustain the 20% profit margin, with a 10% cut in your price you’ll have to increase your volume by 100%. And, if you are ever tempted to drop your price by 15%, just consider the fact that you would have to increase your volume by 300% just to keep your profits at the same level! Price adjustments are most often the businessman’s last bastion in the war against inflation, operating costs and slow collections. And whether they are adjusted down (to generate more activity), or up (to generate more money), the impact, even with very modest numbers can be surprising. The following may prove helpful should you be looking for increased profits in the months ahead: If you want to maintain a 20% profit margin, a 3% increase in price will provide the same profit on 90.0% of the same volume. • 5% increase provides the same profit on 83.5% of the same volume. • 10% price increase provides the same profit on 71.5% of the same volume. • 15% price increase provides the same profit on 62.5% of the same volume. • 20% price increase provides the same profit on 55.5% of the same volume.
The basic principle of business is, in itself, a rather simple one: MORE MONEY SHOULD COME IN but, trying to make that basic principle into a day-to-day reality is, of course, easier said than done. A panel discussion conducted at the 2009 Nuts & Bolts Workshop was held concerning this issue. The focus of the cost per service workshop was to help the operator gain a comprehensive knowledge of the DIRECT COST of providing service to each restroom unit. The direct cost consists of all expenses necessary for the service to physically take place. This method of separating out the direct and indirect expenses will give the operator the detail required to make an informed decision as to the rate of charge per service. UNDERSTANDING THE COST While expenses will vary based on geographic area and seasonality, the cost of service to a portable restroom primarily consists of very common components for each operator. Labor is the largest component for the majority of operators. Even if your company is a one-man operation, your time is valuable and carries significant worth. Do not sell yourself short by believing that you have no labor cost because you do the work yourself. If you ever decide to sell your business, there is exact value to your time. The Cost of Service Worksheet (located at http://psai.org/about.html), breaks down the list of categories making up your direct expenses. To use this tool to your best advantage, we encourage you to begin to assemble the expense and service detail breakdown. Some of you may already have this detail on an annual or monthly basis. If you do, go ahead and fill out the worksheet and see how you compare with your cost per service versus your revenue per service. Keep in mind that the more detail available, the more accurate will be the outcome. The indirect expenses are all other expenses not associated with the direct service to the restroom. All of your expenses combined divided by the services performed will tell you your average cost per service for your entire company. The attempt by the panel is to help you focus on your portable restroom service operating cost and to arrive at a profitable level. Companies who have other industry operations, may not take this division of detail into consideration, which will create an imbalance of the actual per service cost. You must also look at each individual service to quantify if each unit serviced fits your operating parameter and desirable profit margin, as some services may not fit in your geographic service area. Other multiple unit/service jobs may also need to be re-assessed for marketing purposes. Cost Per Service Panel Mr. Michael McCarthy Mr. Mike Pauling Ms. Millicent Carroll |