PERL 105 Practicum: Cost Model Seminar

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

Program Session/YearFall 2012 Program NameHockey LeagueMinMax # of participants 1530 REVENUECost/Team Members$1, Non Members$1, $39, TOTAL REVENUE (Members) $15,000.00$30, EXPENDITURES Staffingper hour# of hours/day# of days Staff Staff Total Wages Benefits20% TOTAL WAGES & BENEFITS $1, FIXED PROGRAM EXPENDITURESCost/Participant Instruction materials/participant 0.00 Give Aways/participant 0.00 Clothing/participant 0.00 Facility Rental Registration cost/participant Marketing cost - 25% program fee25.00% Overhead (15% Contribution)15.00% GST Total Other Expenditures $9,403.75$12, TOTAL EXPENDITURES $10,603.75$13, Profit $4,396.25$16, Profit Target (minimum 30%) 29%54%

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.

How to Use a Cost Model…

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. 1. What is the registration fee/participant 2. 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%

Program Session/Year Program Name Min # of participants 18 REVENUECost/Registrant Youth TOTAL REVENUE (Members) $4, EXPENDITURES Staffingper hour# of hours/day# of days Staff Staff Total Wages Benefits4% TOTAL WAGES & BENEFITS $1, Other ExpendituresCost/Participant Equipment T-shirts$15/Participant Other Giveaways$10/Participant Marketing Registration Charge$5.25/Participant94.50 Overhead10% Total Other Expenditures $2, TOTAL EXPENDITURES $3, Profit $ Profit Target (minimum 20%) 21%

References  Owen, Gary. Ed. Jonathan Law. A Dictionary of Accounting. 4th ed. New York: Oxford UP, Oxford Reference Online Premium. Web. 7 Sept