Modica82 started this topic @ 22:09 on 02/01/2007
Hi all,
I am in the process of writing my businss plan and have sailed through the normal stuff untill i hit my headache of forecasting, which is something i definently need to improve.
I am working on my break even analysis and i am bit confused about my average per unit cost. I am starting a web development company so the direct cost of creating a product is not anything so i am unsure what this should be.
My fixed costs are approx 900 per month and my hourly rate is 45 (average per unit revenue), but my average per unit cost is 0 as i dont really know what else it could be, could someone please help shed some light on this for me.
Thanks
Rob
RE: Break Even Help
James Smith | 03/01/2007 11:54 AM
Rob,
This sort of analysis isn’t something that works too well when it comes to services business, it is more suitable for a product based enterprise. What I would look at is how many hours worth of work do you need to do to pay your costs?
I.e. if your charge out rate is £45 per hour you need to work 20 hours per month to be left at breakeven.
I would also look at what your capacity is. For a services business then it is likely to only be around 5 hours a day for an average of 5 days a week, 45 weeks a year, possibly less if you need to do lots of training and marketing etc. Ie your total hourly charge at "full capacity" is likely to be 5*5*45=1125 rather than the 40*48= 1,920 that many people would initially calculate. It isn’t that would will be knocking off at 3pm, more than you will probably spend 3 hours or more a day on non chargeable activities such as marketing, doing quotations, generally running your office etc etc.
Hope this makes sense.
*Shameless plug* You will find more help in my e-book “how to plan a successful business” http://www.jamesesmith.co.uk/ebooksplan.htm.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
