Popular Post mission vending Posted January 28, 2011 Popular Post Share Posted January 28, 2011 I started this as a separate thread so as not to hijack the thread in which I mentioned it. Here is how I was taught to calculate cost to service. I do this on a monthly basis and it does change from a little from month to month but with nothing else changing in your business it will remain pretty consistent. In short, its the total of all your costs to run your business except for COGS, sales taxes, commissions and debt service. This would include your vehicle expenses, insurance, phone, office expanses, warehouse, repairs, labor and payroll taxes. Then you take that total amount and divide by the number of stops you run for the month. As a generic example lets say your revenue for the month is $25,000.00. The sum of your expenses that fit into your cost to service calculation is $4,250.00 and you run 200 stops for the month. Your cost to service is $21.25 per stop. Your avg. revenue is $125.00 per stop. So for the month, on average, you make $125.00 every time you stop the truck and get out to fill a machine. Of that $125.00 $21.25 is your cost to service leaving you with $103.75. How I use this information: Lets say I am looking at a potential account and I think it will generate $200.00 per week. 52 weeks X $200.00 = $10,400.00 / 12 months = $866.66 per month avg. I anticipate servicing 2X per week = 104 service stops per year and avg of 8.66 service stops per month. 8.66 stops X $21.25 = $184.03 My COGS for my business is 52%, sales taxes are another 5% and 10% commission. That’s a total of 67% of revenue = $866.66 X 67% = $580.66 Adding Cost to service and the fixed expenses, $184.03 + $580.66 = $764.69 leaving a net profit of $101.76. If my equipment investment is $5,000.00 then it will take me 49.2 months to make my money back. If, instead, I service 1X per week 52 weeks / 12 months = 4.33 service stops per month. Take 4.33 stops X $21.25 cost to service = $92.02. Adding cost to service and fixed expenses of $580.66 + $92.02 = $672.68. Subtract that from the estimated monthly revenue of $866.66 - $672.68 = $193.98. So now my time to payoff the equipment is reduced to 25.78 months. So now I look at the potential location and get an idea of what I can do for them. If they want more service then I will reduce my commission offering to “recover” my additional cost. If they want the commission then I know I need to go in with prices that are higher than my average to keep my return on investment down. If I can’t get the higher prices then I will seek a longer term agreement to give me the best opportunity to at least make enough profit to get back the cost of the equipment. Hope this all makes sense. Let me know if it doesn’t I will try to clarify it. 38 1 Link to comment Share on other sites More sharing options...
dogcow Posted January 28, 2011 Share Posted January 28, 2011 that makes sense, sort of what i thought it might be but was not sure what criteria went into it. thanks ! Link to comment Share on other sites More sharing options...
dogcow Posted February 17, 2011 Share Posted February 17, 2011 mission, thanks, by computing my cost to service i was able to determine it would make more sense to reduce servicing all locations to every 2 weeks and some locations to every 3 weeks. this has improved my bottom line and ive actually got a significant sales lift on my snack machines due to filling them more full than i was before. 1 Link to comment Share on other sites More sharing options...
medic2230 Posted February 17, 2011 Share Posted February 17, 2011 That finally makes sense to me now. I was reading the other threads and was kinda confused but now I get it. Thanks for the explanation. Link to comment Share on other sites More sharing options...
mission vending Posted February 17, 2011 Author Share Posted February 17, 2011 (edited) mission, thanks, by computing my cost to service i was able to determine it would make more sense to reduce servicing all locations to every 2 weeks and some locations to every 3 weeks. this has improved my bottom line and ive actually got a significant sales lift on my snack machines due to filling them more full than i was before. So your working less and making more...... sounds like a plan. Glad I could help. Edited February 17, 2011 by mission vending Link to comment Share on other sites More sharing options...
Poplady1 Posted September 7, 2011 Share Posted September 7, 2011 I started this as a separate thread so as not to hijack the thread in which I mentioned it. Here is how I was taught to calculate cost to service. I do this on a monthly basis and it does change from a little from month to month but with nothing else changing in your business it will remain pretty consistent. In short, its the total of all your costs to run your business except for COGS, sales taxes, commissions and debt service. This would include your vehicle expenses, insurance, phone, office expanses, warehouse, repairs, labor and payroll taxes. Then you take that total amount and divide by the number of stops you run for the month. As a generic example lets say your revenue for the month is $25,000.00. The sum of your expenses that fit into your cost to service calculation is $4,250.00 and you run 200 stops for the month. Your cost to service is $21.25 per stop. Your avg. revenue is $125.00 per stop. So for the month, on average, you make $125.00 every time you stop the truck and get out to fill a machine. Of that $125.00 $21.25 is your cost to service leaving you with $103.75. How I use this information: Lets say I am looking at a potential account and I think it will generate $200.00 per week. 52 weeks X $200.00 = $10,400.00 / 12 months = $866.66 per month avg. I anticipate servicing 2X per week = 104 service stops per year and avg of 8.66 service stops per month. 8.66 stops X $21.25 = $184.03 My COGS for my business is 52%, sales taxes are another 5% and 10% commission. That’s a total of 67% of revenue = $866.66 X 67% = $580.66 Adding Cost to service and the fixed expenses, $184.03 + $580.66 = $764.69 leaving a net profit of $101.76. If my equipment investment is $5,000.00 then it will take me 49.2 months to make my money back. If, instead, I service 1X per week 52 weeks / 12 months = 4.33 service stops per month. Take 4.33 stops X $21.25 cost to service = $92.02. Adding cost to service and fixed expenses of $580.66 + $92.02 = $672.68. Subtract that from the estimated monthly revenue of $866.66 - $672.68 = $193.98. So now my time to payoff the equipment is reduced to 25.78 months. So now I look at the potential location and get an idea of what I can do for them. If they want more service then I will reduce my commission offering to “recover” my additional cost. If they want the commission then I know I need to go in with prices that are higher than my average to keep my return on investment down. If I can’t get the higher prices then I will seek a longer term agreement to give me the best opportunity to at least make enough profit to get back the cost of the equipment. Hope this all makes sense. Let me know if it doesn’t I will try to clarify it. Thanks for this example. I am going to copy it off and put it in my notebook. I think a lot of vendors need to think this way to make everything work. Poplady Link to comment Share on other sites More sharing options...
Cvbabcock Posted May 25, 2012 Share Posted May 25, 2012 This is very interesting. I will have to pass this on to a few friends. Now the really question is there a spreadsheet for this? I traditionally have one for everything. Thank you again mission. Link to comment Share on other sites More sharing options...
Dennis23 Posted June 24, 2012 Share Posted June 24, 2012 I enjoyed the post and think we all need to be thinking like you are. Link to comment Share on other sites More sharing options...
sbishop Posted July 12, 2012 Share Posted July 12, 2012 I have taken this approach to some of my lower volume locations. I set a goal of how much I need to collect from each location and schedule my service interval based on their preformance. Link to comment Share on other sites More sharing options...
wilsonlin Posted September 5, 2012 Share Posted September 5, 2012 I started this as a separate thread so as not to hijack the thread in which I mentioned it. Here is how I was taught to calculate cost to service. I do this on a monthly basis and it does change from a little from month to month but with nothing else changing in your business it will remain pretty consistent. In short, its the total of all your costs to run your business except for COGS, sales taxes, commissions and debt service. This would include your vehicle expenses, insurance, phone, office expanses, warehouse, repairs, labor and payroll taxes. Then you take that total amount and divide by the number of stops you run for the month. As a generic example lets say your revenue for the month is $25,000.00. The sum of your expenses that fit into your cost to service calculation is $4,250.00 and you run 200 stops for the month. Your cost to service is $21.25 per stop. Your avg. revenue is $125.00 per stop. So for the month, on average, you make $125.00 every time you stop the truck and get out to fill a machine. Of that $125.00 $21.25 is your cost to service leaving you with $103.75. How I use this information: Lets say I am looking at a potential account and I think it will generate $200.00 per week. 52 weeks X $200.00 = $10,400.00 / 12 months = $866.66 per month avg. I anticipate servicing 2X per week = 104 service stops per year and avg of 8.66 service stops per month. 8.66 stops X $21.25 = $184.03 My COGS for my business is 52%, sales taxes are another 5% and 10% commission. That’s a total of 67% of revenue = $866.66 X 67% = $580.66 Adding Cost to service and the fixed expenses, $184.03 + $580.66 = $764.69 leaving a net profit of $101.76. If my equipment investment is $5,000.00 then it will take me 49.2 months to make my money back. If, instead, I service 1X per week 52 weeks / 12 months = 4.33 service stops per month. Take 4.33 stops X $21.25 cost to service = $92.02. Adding cost to service and fixed expenses of $580.66 + $92.02 = $672.68. Subtract that from the estimated monthly revenue of $866.66 - $672.68 = $193.98. So now my time to payoff the equipment is reduced to 25.78 months. So now I look at the potential location and get an idea of what I can do for them. If they want more service then I will reduce my commission offering to “recover” my additional cost. If they want the commission then I know I need to go in with prices that are higher than my average to keep my return on investment down. If I can’t get the higher prices then I will seek a longer term agreement to give me the best opportunity to at least make enough profit to get back the cost of the equipment. Hope this all makes sense. Let me know if it doesn’t I will try to clarify it. Hi Mission, What exactly you mean about servicing the machines? is it machine-wise service or replenishing the goods inside? What is we can reduce the servicing interval which saves a lot of cost on that? Wilson Link to comment Share on other sites More sharing options...
Popular Post Vending How Chris Posted September 18, 2012 Popular Post Share Posted September 18, 2012 When we say "service", we usually mean fill and otherwise check to make sure it's in good working order. Ideally you only service it once per service period. I think this is a great way to think about accounts! One addition I would make is that it's important to also think of locations together. So if you have a location with a lower cost to service next door, then it's important to think of the location's combined cost to service. What I mean by this is imagine you have a location that you have a shallow snack machine which has to be refilled every 3 weeks. This location alone is not really worth it. However, say you have a location nearby where the gas to get there is negligible and the cost to service is much lower. Now the combined value of both accounts makes the lower value account more valuable because of its proximity. This is also a good thing to keep in mind when getting new accounts. Ask locations that you service whether or not there are locations nearby. Chris 2 Link to comment Share on other sites More sharing options...
tikoblack Posted October 15, 2012 Share Posted October 15, 2012 How much does it cost to start in the beverage vending niche? Link to comment Share on other sites More sharing options...
dapoopta Posted March 5, 2013 Share Posted March 5, 2013 wow, this is great! Very helpful information for someone just starting off. OP, Do you find it very accurate after using it for a while? anyone else try it? Link to comment Share on other sites More sharing options...
spdydre Posted March 6, 2013 Share Posted March 6, 2013 (edited) this is good but doesnt work on all accounts sometimes you will get odd requests. For instance I have a great account in one of the high rises, I could double up and spread it out to service every two weeks but they want to see me every week once a week. It doesnt matter if I walk in the building and out as long as they see me and it was one of their requirements and why they kicked out their other vendor. I could save on my CTS but on this particular account I had to weigh the cost to service every week vs. the income comming in to see if it was worth it. Im really thinking about doubling up and maybe just sending a friend over there thats close by to walk in and check on the account twice a month lol Edited March 6, 2013 by spdydre Link to comment Share on other sites More sharing options...
tc vending Posted April 20, 2013 Share Posted April 20, 2013 New to the forum, that's a great way to break down cost structures. Link to comment Share on other sites More sharing options...
SeaTurtle Vending Posted April 20, 2013 Share Posted April 20, 2013 In addition, slower accounts usually understand they are slower. Therefore, I have a couple accounts where the agreement is they call me when service is needed. This has been a huge help, as sometimes I might need to go back in two weeks and other times it could be 5. It simply depends based on the people going through at the time. Link to comment Share on other sites More sharing options...
tc vending Posted April 20, 2013 Share Posted April 20, 2013 I have several two week accounts this works very well for me. Service once a week for most of our accounts or more if need. I wish had the break down when we started in 2006 learned most of this stuff the hard way. Link to comment Share on other sites More sharing options...
mission vending Posted April 27, 2013 Author Share Posted April 27, 2013 I have several two week accounts this works very well for me. Service once a week for most of our accounts or more if need. I wish had the break down when we started in 2006 learned most of this stuff the hard way. Its not nearly advanced as a full blown software package but it does provide us smaller operators a quick and relatively easy metric to track the performance of our businesses. To me, that's the important thing, to do SOME kind of analysis on a regular basis to see where you stand. 1 Link to comment Share on other sites More sharing options...
rmorris1953 Posted August 24, 2013 Share Posted August 24, 2013 This is great information I can pass on to my customers I do work for. I try to help them as much as I can. The more they make the more I make. Thanks 1 Link to comment Share on other sites More sharing options...
engineer1984 Posted September 20, 2013 Share Posted September 20, 2013 (edited) So commision is taken off of Revenue or Profit? You have it taken from Revenue, correct? Stupid question.. nevermind. Edited September 20, 2013 by engineer1984 Link to comment Share on other sites More sharing options...
engineer1984 Posted September 23, 2013 Share Posted September 23, 2013 (edited) Below is an image of an excel sheet I am working on to get an idea of estimated profits / losses / costs / etc associated with vending. I tried uploading the excel file, but its not going through. So what I did instead was make it an image and post the equations next to the cells that have an equation. Blue means an input and the green with green highlight means we are making money and if red with red highlight shows up it means we are losing money. For the 'ROI,monthly income' I came up with my own equation because using the standard ROI calculation doesn't seem to work when there is an understood time component. In other words, if I'm selling something once, ROI works great. If I'm making a monthly income off of an investment, we need another measurement. I just took the monthly income divided by the cost of the machines. I'm posting to make sure that: A) all my numbers look reasonable. I used numbers like 50% cost from some different posts I read here. Are my guesstimates good? no calculation errors C) Is this showing realistic profit / loss? Am I missing anything? D) Maybe this will help others as I understand better in this format than in word descriptions. Hopefully, I'm not the only one. Thanks in advance and cheers, Andy Link to a better picture through google: https://docs.google.com/file/d/0B75Pf-BWpe1rT0dabzItUW9rMXM/edit?usp=sharing Edited September 23, 2013 by engineer1984 1 Link to comment Share on other sites More sharing options...
caserri Posted September 23, 2013 Share Posted September 23, 2013 Andy, Is this the same file you uploaded to the download section? If so, let me know when it is completed and I will approve the file. Looks like something that may help others. 1 Link to comment Share on other sites More sharing options...
engineer1984 Posted September 23, 2013 Share Posted September 23, 2013 No problemo! Link to comment Share on other sites More sharing options...
Tuned Posted October 4, 2013 Share Posted October 4, 2013 thanks for the info Link to comment Share on other sites More sharing options...
curiosvending Posted October 19, 2013 Share Posted October 19, 2013 i think the approach is valid and that anytime you can increase your span of control by reducing the number of "touches" you will be in good shape Link to comment Share on other sites More sharing options...
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