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This seminar provides an essential overview of using cost models for effective program management. Participants will learn the purpose and application of cost models, including recognizing benefits such as improved budget management and revenue assessment. The session covers detailed analysis of expenditures and revenues while emphasizing the importance of market analysis in establishing competitive pricing. By the end, attendees will understand how to structure registration fees based on thorough financial assessments and market positioning for their programs.
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Objectives • Understand the purpose of using a cost model • Gain an understanding of how to use a cost model • Recognize the benefits to using a cost model • Understand the purpose of conducting a market analysis.
Cost Model • A tool that can be used to clearly define the expenses associated with running a program
Expenditures “The costs or expenses incurred by an organization. …expenditure is usually incurred by an outlay of money…” - Law, Jonathan (2010), A Dictionary of Accounting
Revenue “Any form of income.” - Law, Jonathan (2010), A Dictionary of Accounting
Profit “For a single transaction or set of transactions, the excess of sales revenue over the costs of providing the goods or services sold.” • Law, Jonathan (2010), A Dictionary of Accounting • ie. Revenue – Expenses = Profit
Benefits of Cost Models • Gain an understanding of the overall costs of a program • Assists with budget management • Can be used to determine appropriate registration fees and minimum participant requirements • Assesses revenue
Market Analysis • After cost model is completed, do a market analysis to see where your program fits in relation to other similar facilities offering similar programs. • If it is too cheap people will question it’s quality. • If it is too expensive, people will go elsewhere (unless your program is extraordinary and justifies higher price). • If this is the case, make sure that your advertising clearly explains why your product is better.
Expenses • Staffing • Benefits • Vacation pay • Consider supervision rations • Facility Rental • Equipment • Giveaways, Prizes, Perks • Set-Up Costs • Set-up facility or equipment
Transportation and Travel • Contract Services • Are you contracting a portion of the program out to another organization? • Overhead • Administration • Building Costs • Generally expressed as a percentage of revenue • GST • Difference between expenses that are participant dependent and those that aren’t
Total Expenses The sum of all individual expenses
Revenue • Registration cost per participant • Number of participants • Maximum number based on facility space, supervision ratios, equipment, etc… • Minimum number based on the least number of participants needed to run program and still meet profit target. • Total Revenue: number of registrants x registration fee
Profit Target • The amount of profit you want or need to make. • Usually set by company management. • Expressed as a percentage of revenue. • Profit Target = Profit/Revenue
Cost Model Assignment Use the information on the next slide to answer the following questions. • What is the registration fee/participant • The profit represents what percentage of the revenue? Did you meet the profit target?
Minimum registrants: 18 • Camp runs 8:00am-4:00pm, Mon – Fri • Staff: 2 staff – Paid $14/hr (+ 4% in benefits) • Equipment Costs - $400 • Participant T-shirt - $15/participant • Other giveaways - $10/participant • Camp Marketing - $1000 • Registration charge - $5.25/participant • Overhead – 10% ($450) • Profit Target – 20%
References • Owen, Gary. Ed. Jonathan Law. A Dictionary of Accounting. 4th ed. New York: Oxford UP, 2010. Oxford Reference Online Premium. Web. 7 Sept. 2012.
