I had the most amazing conversation with a client yesterday. I was helping her set up her account, and we quickly got to putting a price in for lessons. She knew her client rate without a problem, but the conversation got interesting when we were talking about her internal cost.
How do you value your time? This pertains to lessons, board packages, rides, and other service-based activities that either have your labor as a component as well as costs that affect multiple horses (like an order of hay).
We decided to leave the internal cost for rides, lessons, and board packages at $0. Now we all know it is not zero, but putting an arbitrary number there is not a good practice either.
This said she is paying someone to give lessons along with the lessons she also gives. So, we set up a lesson activity for that person (Exercise and Training > Lesson > Lesson with Laura) and added an internal cost equal to what she pays Laura to give a lesson.
We then talked about how do we measure the actual cost of the business. The highest cost for boarding is grain, hay, shavings, and labor. And, other costs also apply, like supplements, insurance, electricity, barn maintenance, so on and so forth.
So, we decided to measure all of those inputs by the use of fees. For example, she had just gone to the feed store and picked up alfalfa. She paid $96 for six bales of alfalfa, and she feeds alfalfa to two horses. So, we created a new fee for alfalfa, and we split the fee between those two horses. Now those horses have a cost associated with them.
We did the same thing for a supplement she just purchased that is given to 3 horses. $76 was split between those three horses. She also had scenarios where she buys a supplement for client horses and charges them in their board bill. So, we set up a custom fee for each supplement in system settings and established a Client Price and Internal Cost.
Because she does this multiple times, she wanted the pricing established in the system, so she could quickly add it as a new fee related to the horse when she purchases them (and now supplements automatically go onto the invoice, no remembering to add this to the invoice after the fact).
As she continues to track these cost inputs to her business, she will be able to see her internal costs per horse (report specifically for that) and identify if she is covering her costs in the client price that she charges for boarding. This allows her to review profitability on a horse-by-horse basis, at this point related to true cash outlays.
Her final step will be to analyze her business in aggregate and see how much profit she sees overall. The resultant net profit now has to be contributed to her labor and her organizational profit.
On board, is she charging the right prices to cover her costs? Does the net profit on board cover her labor to care for the horses? Are there opportunities to increase prices or charge additional fees (say blanketing charge or additional feeding charge) that will help her recover costs?
How many lessons did she give? What is the impact on lessons or training to profitability by horse (meaning does this make the difference between being profitable or not profitable)?
How can she invoice faster to improve cash during the month? Are there certain items that should be invoiced at the time of services vs. at the end of the month?