PERL 105 Practicum: Cost Model Seminar

1. PERL 105 Practicum: Cost Model Seminar

2. 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.

3. Cost Model • A tool that can be used to clearly define the expenses associated with running a program

5. 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

6. Revenue “Any form of income.” - Law, Jonathan (2010)

7. 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) Profit = __________ - _____________

8. 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 • Assess revenue

9. 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.

10. How to Use a Cost Model…

11. Expenses • Staffing • Benefits • Vacation pay • Consider supervision ratios • Facility Rental • Equipment • Giveaways, Prizes, Perks • Set-Up Costs • Set-up facility or equipment

12. 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 • Overhead = _________________ x _________________ • GST • GST is not charged on recreational programs for children 14 and under. • Difference between expenses that are participant dependent and those that aren’t

13. Total Expenses The sum of all individual expenses

14. 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 = ________________ x ________________

15. Sponsorship • Types of sponsorship: • Financial Sponsor – money • In-Kind Sponsor – goods • Location Sponsor – facility • Sponsorship should be included as a form of revenue. • Any corresponding expenses should be included in the expense portion of your cost model

16. 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 = _____________ / ______________

17. 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?

18. Minimum registrants: 16 • Camp runs 8:00am-4:00pm, Mon – Fri • Staff: 2 staff – Paid $15/hr (+ 4% in benefits) • Equipment Costs - $300 • Participant T-shirt - $17/participant • Other giveaways - $12/participant • Camp Marketing - $1250 • Registration charge - $5.25/participant • Overhead – 10% ($448) • Profit Target – 15%

19. 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.