Cost and Pricing Pres

8/11/2019 Cost and Pricing Pres

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Get Paid for Your Passion

Basic Cost Price Accounting for Creative

Entrepreneurs

Presented by: Ben Kritz, MBA

By PresenterMedia.com

http://www.presentermedia.com/mspp.html

http://www.presentermedia.com/mspp.html



What You Will Learn

To earn from your craft, you have to learn to think like anearner.

If you think you know what practicing your art reallycosts, guess what? You don’t.

Keeping records and doing the drudge work – withouttaking time away from what you do best.

Rules to

Live By

Costs

Pricing

Your Work

Stacking

Beans

How to determine what you’re really worth.



What You Won’t Learn

Once you’ve named your price, how do you get clients topay it? You attend my other seminar on that topic, that’show.

The goal here is to help you take care of business and

keep on creating, not to keep you chained to your desk.

No one needs that.

Sales

Promotion

Complex

Accounting

Tax Legal

Compliance

Following the law is your responsibility. I’d like to think I canprovide you helpful tips, but I am no substitute for a tax orlegal professional. If you need one, I know some people.



Two Kinds of Costs:•

Fixed Costs

• Variable Costs

Require different methods ofaccounting

You have more flexibility inmanaging fixed costs

Costs: They’re

Everywhere

VariableVariableCosts: Costs:

Costs that areproject-dependent

Fixed Costs: Fixed Costs:Costs you incur just

for existing



FIXED COST ITEMS:

• Recurring Professional Fees

• Business Registration

• Other License Fees

• Association/Union Dues

• Property & Liability Insurance

• Rent/Mortgage for Workspace

• Depreciation

• Equipment

• Vehicle used for business• Workspace property if owned

• Project-specific prep/setupexpenses

• Travel expenses• Payroll (for helpers, not you)•

Damage or loss• Only if not covered by

insurance• Consumable supplies• Utilities for workspace & work-

related activities• Taxes• Other fees, if these are income-

dependent

VARIABLE COST ITEMS:

Comparing Fixed Variable Costs

Some Examples



We will spend the next 20We will spend the next 20minutes or so answeringminutes or so answeringyour questions about “Isyour questions about “Isthis a fixed or variablethis a fixed or variable

cost?” Because that alwayscost?” Because that alwayshappens at this point.happens at this point.

So go ahead and whip ‘So go ahead and whip ‘ememout.out.

And now…



Handling Fixed Costs

Method One: The Per Method One: The Per--Diem Approach Diem Approach

Basically involves calculating the total fixed costs for anentire year, then dividing by 365 to arrive at a per-diem rate.

Pros:

Accurate way to assess profitability of individual jobs “Figure it & forget it” ease of use, if costs are stable

Cons:Needs to be recalculated if costs change (for example, if you buy

new equipment)

Increasing margin of error the less data you have – works better ifrecords have been kept for a longer time



Handling Fixed Costs cont’d)

Method Two: The Percentage Approach Method Two: The Percentage Approach

Basically involves calculating the total fixed costs for a givenperiod (year/month/week/day or “to date”), then dividing byrevenue earned in the same period to arrive at a percentage.Pros:

Compensates for some fluctuations in costsEasier to use if income comes from many small jobs

Cons:First job is a shot in the dark – won’t work until you’ve earned

somethingTends to be exponential – costs higher to start, so either charge ahigh price and gradually lower it, or live with losses for a period oftime until income catches up



Cost Item Rate Per Diem Cost

Business License P2,500 yearly P6.85

Association Dues P1,000 yearly P2.74

Studio Rent P5,000 per month P164.38

Liability Insurance P250 per month P8.22

Depreciation (Equipment) 15% annually on original value ofP300,000 (avg. age 3 years)

P89.08

Depreciation (Vehicle) 10% annually on original value of

P700,000 (age 7 years)

P101.92

Total P373.19

•Example Using the Per-Diem Method



In Other Words…

The work costs P373.19 per day, whether you’re The work costs P373.19 per day, whether you’re

earning anything or not! In reality, the fixed costsearning anything or not! In reality, the fixed costsfor most of you are probably much higher.for most of you are probably much higher.

Important Points to Remember:mportant Points to Remember:

The actual amount of depreciation constantly decreasesThe actual amount of depreciation constantly decreases(that’s good).(that’s good).

The fixed cost amount is added to total cost per job; i.e., ifThe fixed cost amount is added to total cost per job; i.e., ifyou do one job/day, add P373.19, if you do 3 in one day, addyou do one job/day, add P373.19, if you do 3 in one day, addP124.40 to each.P124.40 to each.



Handling Variable Costs

The Easiest & Most Accurate Method is Per The Easiest & Most Accurate Method is Per--Job Job

Steps to Follow:Record all expenses for every job, use these records to estimatecosts for new job bids. Be thorough.Combine expenses where possible. Example: Fuel & other

operating costs for a car (not counting depreciation & insurance)are roughly P7.50/km, so all you need to record is number of kmtraveled.Record the amount of time spent, including travel time and post- shooting production time.For workspace time, add appropriate amount for utilities (lights,internet, phone, etc.). This is easiest to figure on a per-day or per- hour basis.



Cost Item Rate Item Cost

Travel to and from ProjectLocation

17 km at P7.50/km P127.50

Meals (incl. any during the timeperiod above)

P450 P450.00

Consumable supplies (e.g.,batteries, disposable props,

snacks during the shoot, etc.)

P200 P200.00

Parking Fees P100 P100.00

Utility costs attributable toproject (phone, elec., internet)

P175 P175.00

Total time spent 14 hours

Buffer amount (always leaveyourself a little slack!)

10% of total P105.25

Total P1157.75

•Simple Example of Variable Costs



What is your time worth?hat is your time worth?

Unfortunately, there’s not aUnfortunately, there’s not a

simple answer to that.simple answer to that.ooShare notes with yourShare notes with yourcolleaguescolleagues –– what’s the “goingwhat’s the “goingrate?” rate?”

ooOr…Or…

The next big question…



The Ratio Method for Time-Costing

What is the proportion of time spenthat is the proportion of time spent creatingreating to timeo time

spentpent preparingreparing to create?o create?

My Own Example:y Own Example:

I can write a 1,000 word newspaper column inI can write a 1,000 word newspaper column inabout 1 ½ hours, on average.about 1 ½ hours, on average.

However, for one column I will typically spendHowever, for one column I will typically spendabout 6 hours on background workabout 6 hours on background work –– reading,reading,

interviews, attending hearings, phone calls, etc.interviews, attending hearings, phone calls, etc.Therefore, my “creation ratio” is 4:1Therefore, my “creation ratio” is 4:1



The Ratio Method for Time-Costing

cont’d)

Apply the ratio to the costs /time for the job:pply the ratio to the costs /time for the job:

Our Example Job:ur Example Job:

Costs for the project:Costs for the project: P373.19P373.19 fixed costsfixed costs P1157.75P1157.75 variable costsvariable costs

Total =Total = P1530.94P1530.94. Divided by 14 hours total time =. Divided by 14 hours total time = P105.39P105.39 per hour per hour

By the ratio (4:1), the time is worthBy the ratio (4:1), the time is worth P421.56P421.56 per hour.per hour.

Multiply that by the time actually spent “creating” (say, 10Multiply that by the time actually spent “creating” (say, 10hours out of the 14hours out of the 14- -hour day) to arrive at a final timehour day) to arrive at a final time- -costcostfigure:figure: P4,215.60P4,215.60..



OUR IDEAL ‘EXAMPLE’

• Total fixed + variable costs =P1530.94

• Time cost = P4215.60

• Subtotal = P5746.54

• VAT (Technically, you’re supposedto!) of 12% = P689.58

• Total charged to client =

P6,436.126,436.12

(If it was me, I’d say P6,500)(If it was me, I’d say P6,500)

• Total fixed + variable costs =P1530.94

• How much profit do you want?100% always sounds good to me,

so add another P1530.94• Subtotal = P3061.88

• VAT (Again, we don’t need to beseeing Ate Kim’s pudgy mug atour door) of 12% = P367.43

• Total charged to client =

P3,429.313,429.31

(which sounds like P3,500)(which sounds like P3,500)

ADDED-MARGIN

Comparing Different Methods:



Points to Ponder…oints to Ponder…

••

What your “profit” should be is ahat your “profit” should be is a

balance between what you thinkalance between what you think

you’re worth what your marketou’re worth what your market

is willing to pay. There’s no easys willing to pay. There’s no easy

answer to that question. Sorry.nswer to that question. Sorry.

••The methods discussed here willhe methods discussed here will

at least account for your costst least account for your costs

with reasonableith reasonable accuracy.ccuracy.

••Making recordaking record-keeping a habiteeping a habit

a routine will pay dividends in theroutine will pay dividends in the

long run.ong run.



Questions? Comments?uestions? Comments?

I am not hard to find: am not hard to find:

••[email protected]@outlook.com

••http://benkritz.wordpress.comttp://benkritz.wordpress.com

••http://manilatimes.net/category/businessttp://manilatimes.net/category/business

••http://grbusinessonline.wordpress.comttp://grbusinessonline.wordpress.com

••And I’m on Facebook Twitter LinkedInnd I’m on Facebook Twitter LinkedIn

Google+ who knows what else…oogle+ who knows what else…

mailto:[email protected]


http://benkritz.wordpress.com/


http://manilatimes.net/category/business


http://grbusinessonline.wordpress.com/






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Cost and Pricing Pres