Cost To Service

[ameery]

Great post! thanks for the detailed information and examples...

[vendtan]

Thanks for the spreadsheet, could you explain the cost side and sell side a bit more for a newbie?

 

One problem I noticed was if I increase cost of goods, then my profits increased.

 

Should the profit not go down if the cost of goods increases?

Edited July 27, 2014 by vendtan

[tasty]

 

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

 

you got that wrong, man. you used cost 50%+10%+6% as your profit percentage. week sales only $50, how can you end up $23 in profit? 50%+10%+6%=66%. this is cost not profit. with 66% go to cost, you have 34% in profit, if no other costs. so your profit is $50x34%=$17

[AngryChris]

you got that wrong, man. you used cost 50%+10%+6% as your profit percentage. week sales only $50, how can you end up $23 in profit? 50%+10%+6%=66%. this is cost not profit. with 66% go to cost, you have 34% in profit, if no other costs. so your profit is $50x34%=$17

Good catch. Looks like he subtracted 10% and 50% and added 6%.

[tasty]

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.

thank you. mission vending.

so what is the time frame that need to pay off the equipment is considered good investment in vending business?

[AROMACAFE]

Thank you for the information.Very intelligent aproach to vending.

[vballest]

This is exactly the information I've been looking for.  Thank you for breaking it down in a way that's easy to understand.

[sorianocarlos]

This is a great info,

 

I have some questions, adding to your info can help to make a business plan:

• Which is an attractive payback time for a machine?
• How do you work with loans for machines? If you use them, do you extend your Payback time per machine as long as the loan is?
• What is your threshold of monthly payment or machine purchase value?
• How do you choose to get a new vending machine instead an used or refurbished?
• How do you set prices per location based in product costs, number and type of potential customers, machine investment? To fit with your expected profit

[Marcomc]

Good info.

[horsemenvending]

On 4/20/2013 at 2:07 PM, SeaTurtle Vending said:

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.

What about tracking stocks with a computer program or through a CC reader? Wouldn't' this increase sales and save time?

[AZVendor]

All of the credit card suppliers offer that kind of software as long as the machine reports cash sales properly.  The card reader can make you money and the ability to prekit or change your service schedule based on sales allows you to save money on route expenses.  You can also do this manually when you're small but if you plan on growing to 60-100 machines or more you will want technology to do that work for you beginning now rather than later.  Just remember, not all accounts will be worthy of a card reader so in those cases you will still want the data capabilities of their modems in each machine.

[livinginthe80z]

So is 125$ the national average for a drink machine? I believe 10$ a month is the average for bulk machines. But is that 10$ a head or 10$ machine up to how many heads?

[AngryChris]

4 minutes ago, livinginthe80z said:

So is 125$ the national average for a drink machine? I believe 10$ a month is the average for bulk machines. But is that 10$ a head or 10$ machine up to how many heads?

I don't know what the national average is.  There is probably no real way to calculate it out because there are so many small vendors that don't take part in relevant surveys.  A soda machine can do anywhere from $10 to thousands of dollars every month.  Why would you want to know an average though?  It's really nothing more than a number.  What a soda machine does in a month, or any vending machine for that matter, generally depends on the variables at the location, such as the number of employees, the type of workers they are, the number of shifts and the breakdown of people in each shift, the demographics of the workers, the distance from convenience stores and fast food, etc..  If you are looking for an average in hopes that you can place a soda machine anywhere and make $XX/month, then that would be a mistake.  An office with 20 employees might be lucky to break $50/month, whereas a manufacturing facility with 20 people could possibly do over $200/month.  Thing is, once you start making a decent amount on soda, you'll want to add a snack machine too.  Not just for extra profits, but also because if you don't give them a snack, some other vendor will.

[AZVendor]

Industry averages are of no use to any vendor.  They are just irrelevant statistics that end up being used only by scammers trying to sell crappy machines to people who know nothing about vending.  If you get to be a large vendor with multiple routes doing a million dollars a year then you can sit down and spend all the time you want analyzing your sales vs the "national average," but I never wasted my time with that.  Your average is what your average is and if you don't like it then you need to find better locations.

[Jeff PA]

Great explanation! Very useful...thanks!