I love the Bud Light commercial where the girl pins a boutonniere on her date’s lapel. First it falls, which is too light. When she staples it on his suit, it’s too hard. I just saw this commercial again during Monday Night Football this week, and it makes me laugh every time. GO GIANTS!
Anyway, the same is true in business when you’re selling a product or service. Barnum Financial Group does a great job at this. Fees are clearly documented, so you know up front what to expect. No one likes hidden fees and they always come back to bite the business owner in the end, figuratively speaking, of course. So consider the following elements while reviewing your 2010 price list:
1. Think with the end in mind, starting with your desired net profit margin and list all your cost components; direct, indirect, variable and overhead costs. In order to price effectively, you need to have a thorough understanding of these cost components.
2. Take it a step farther, and calculate costs for each product you sell. It’s not enough to calculate net profit without thinking about the contribution margin of each item you sell, as variations between profit margins are likely to exist from one product to another.
3. Consider the role product mixes can play in determining price. It’s o.k. to sell a product at a low margin, if compatible products keep customers coming back. This is when forecasting can help measure the effect of changes in sales volume.
For more tips and information regarding price setting and cost management call Campanelli & Associates CPA LLC at 203 243-6999.
Thursday, December 24, 2009
Sunday, December 6, 2009
Employee or Contractor
Sometimes it is unclear whether a worker is an employee or contractor. Yet improper classification may not only result in fines and penalties by the IRS, but can also leave the employer open to other liabilities and lost income. The criteria I use to determine if an individual is deemed to be an employee or an independent contractor is based on the following three principles:
1. Determine who has control over how the work is performed. When the work is done according to employer’s specification, the worker is typically classified as an employee. Control can be acknowledged in a number of ways. For example, a restaurant employs a food service worker, who prepares meals according to instructions by management. The worker is considered an employee.
2. The amount of time and payment terms. When the person is paid based on completion of an assignment, and/or wages are agreed to be paid upon satisfaction by the employer, the perception is that the worker is independent. Other factors indicating an independent relationship are that the worker determines when the work is completed and splits his time between several employers.
3. The behavior of the parties and agreement between the parties. Here is when actions speak louder than words. An employee cannot send in a replacement, but an independent contractor can subcontract the job. Who provides the tools, who can terminate the relationship, and who determines the rate charged are all factors to consider when classifying worker status.
When in doubt, the IRS can make a determination on a case by case basis. For more information, go to http://www.irs.gov/newsroom/article/0,,id=173423,00.html.
1. Determine who has control over how the work is performed. When the work is done according to employer’s specification, the worker is typically classified as an employee. Control can be acknowledged in a number of ways. For example, a restaurant employs a food service worker, who prepares meals according to instructions by management. The worker is considered an employee.
2. The amount of time and payment terms. When the person is paid based on completion of an assignment, and/or wages are agreed to be paid upon satisfaction by the employer, the perception is that the worker is independent. Other factors indicating an independent relationship are that the worker determines when the work is completed and splits his time between several employers.
3. The behavior of the parties and agreement between the parties. Here is when actions speak louder than words. An employee cannot send in a replacement, but an independent contractor can subcontract the job. Who provides the tools, who can terminate the relationship, and who determines the rate charged are all factors to consider when classifying worker status.
When in doubt, the IRS can make a determination on a case by case basis. For more information, go to http://www.irs.gov/newsroom/article/0,,id=173423,00.html.
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