Marginal Revenue Vs. Marginal Cost
Every Day You Are - Presented With ways to spend your hard earned money and the key strategy is to put your money to work where it will earn you more money.
Some Are Worthwhile - Most of them are not. The answer is to have a system where you can quickly and easily determine which opportunities to pursue.
We Have Many Financial - Tools to help our clients make intelligent informed decisions on which opportunities to accept and which ones to reject.
There Are Several Scenarios:
- Simple one-time investment
- Large purchases with a down payment and subsequent monthly payments
- Initial purchases followed by monthly or yearly maintenance payments
- Present value calculations
- Internal Rate Of Return (IIR)
- Discounted cash flows
- And several more
Our Clients - Need to provide three bits of information and we generate the report for them:
- The cost (exact or rough estimate / whatever they have)
- How long they expect the tool / equipment will last (weeks / months /years, whatever they have)
- How much time it will save (minutes / hours / days, whatever they have)
From Three Bits - Of information and some reports we generate from their QuickBooks we generate the report for our construction business owner client a simple one page summary report they can use to make an intelligent informed decision.
Shown Below - Is a very simple formula to give you some insights on investing in a one-time office equipment upgrade. The principle applies just as easily with field tools and equipment using field labor cost calculations.
One-Time Investment:
Step 01. Initial Investment - Projected cost of the opportunity
Step 02. Alternate Use Of Funds - Projected loss of interest or cost of borrowing initial investment
Step 03. Marginal Cost - Projected total Initial Investment plus Alternate Use Of Funds
Step 04. Marginal Revenue - Projected NEW revenue or savings from the opportunity
Step 05. ROI - Projected Return On Investment as a percentage
Step 06. Payback - Projected number of years for the opportunity to payback the Marginal Cost
Step 07. Annual Dividend - Projected NEW revenue or savings each year
Step 08. Life Span - Projected number of years the company will generate dividends
Step 09. Lifetime Value - Projected lifetime Value = (Annual Dividend X Life Span)
Step 10. Lifetime ROI - Projected lifetime Return On Investment as a percentage
Step 11. Construction Company - Annual profit as a percentage
Step 12. New Sales - Needed to generate same profit
Bookkeeping Example:
The Problem
- Bookkeeper has one 19" RGB monitor on the desk
- Hard to see numbers which causes eye strain
- Bookkeeper is wasting 30 minutes a day due to poor equipment
The Solution
Invest In Dual 27" DVI monitors for your bookkeeper's computer at a rough cost of $600.00
- Bookkeeper has two 27" DVI monitors on the desk
- Numbers has no eye strain
- Bookkeeper is not wasting time
Increase Sales Or Reduce Costs - The two main drivers of profit. Best practices from successful construction companies are to do both. The key is a thorough analysis on a case-by-case basis for each opportunity.
The Example Shown Above - Should take about fifteen minutes if your QuickBooks is properly setup and maintained so that it generates accurate useful reports.
If Your QuickBooks - Is not generating accurate reports contact us immediately because most business failures can be traced back to a lack of Key Performance Reports and bad bookkeeping.
There A Better Way To Run Your Construction Business And You Found It!
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