Simple way to understand costings

[VitalityTherapies]

Hi

Would anyone be able to clarify these questions for me. I've tried researching them and I can't grasp it.

How do you all work out the cost per treatment you carry out. For example, with a swedish massage. Do you simply work out cost of the products used, or do you include the washing of the towels after, insurances, fuel and then breakdown that amount by how many treatments you do a week?

I'm writing a business plan and I would like to confirm estimates for costs per treatment and potential income and I can't phathom it.

Many thanks

Natalie

 

[salonfrog]

Hi Natalie

A lot of businesses tend to use the "cost contribution" method.

With this method, you think about what 'additional' costs arise because you have provided that particular service to one additional Client (that would not have arisen if you hadn't provided it). These are all called "Direct Costs"

In your example, the 'cost of the products used' on the Client would be included. So too would be the cost of having to wash the towels afterwards.

In this method, you would ignore costs that are not direct - in other words, you have to pay for them whether you provided 1 massage or 20 (they are a fixed cost). Same with fuel (unless you have to drive to the Client's address to provide the service, then you would include fuel as a direct cost).

How to lay out in your business plan:

Start with the fee per service provided to one Client.
Then show the direct costs incurred for this service to one Client.
Deduct one form the other to give a "Cash Contribution per Client".
Then multiply this by the number of Clients you expect to provide this service to - this total is your "Total Cash Contribution".
Then show your Total Fixed Costs (your overheads like insurances and rent)
Then deduct this from your "Total Cash Contribution" to give your "Total Profits"

Fee per Service £x
less: Direct Costs per service £x
TOTAL: Cash Contribution per Client £x

Number of Clients = x

Total Cash Contribution £x

less: Total Fixed Costs £x

Total Profit £x


Hope that helps?

 

[VitalityTherapies]

Thank you so much for your response, it has really helped. The knowledge on this site is invaluable

 

[salonfrog]

Thank you so much for your response, it has really helped. The knowledge on this site is invaluable

No problem. Just shout if you need anything further.