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Thread: Calculating a price for a service incorporating replacement cost of equipment into the pirce

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    Calculating a price for a service incorporating replacement cost of equipment into the pirce

    We are in the process of starting a small business (the process will take two years) supplying specialised integrated pest management (IPM) services to the agricultural industry. I am looking into ways determining the price of our services taking into account all our cost. We will be in business incubation for two years, using specialised equipment (microscope etc.) which will be supplied to us during the incubation period. However, after the two or three years we are going to need to buy equipment of our own. I was wondering how can I first calculate the replacement cost over two years of the equipment and incorporate that into the price of our service - which will then after two/three years give us enough capital to buy our own equipment when we leave incubation. Is there any formula that I can use. I am new to accounting and business.

    Any ideas regarding this will be much appreciated.

    Kind Regards
    Gulu

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    Try calculating the cost savings... or the lcost of NOT having your service ?

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    Any business has a basic cost to be in business.
    In other words, at the beginning of every month, before you have serviced or even sold your first item, there is a cost to be in business.
    This cost is overlooked by many, and is the demise in businesses not making any money.

    In your case, I would take the cost of purchasing the equipment as new, and making provision for this as a monthly expense for the 2 years as you refer to, and have a savings account in which this money is deposited diligently every month, AND NOT USED FOR ANYTHING ELSE BUT IT"S INTENDED PUPRPOSE!!!!! otherwise what is the point of doing it?
    You may want to take this a step further, and use the calculation as though you are leasing the equipment and use the interest charged as part of the money saved every month.

    Any way back to calculating costs.
    Take into consideration
    Rent
    Motor car expense
    Insurance
    Telephone
    Wages and salaries
    Consumables
    Petrol
    Levies
    PAYE
    Leases


    Add all these numbers up, and divide the total expense by the number of hours you will work in the month. According to labour laws, this can vary from 160 to 180 hours.

    This is the base cost you have to work from as a cost per hour, now you need to add your profit for doing this work every hour. What you have to factor in is all the time in which you are not working, but have to carry the business cost. This is what allows you to make a profit or not.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
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