For people with any corporate experience, particularly those with an understanding of management accounts, the concept of cost of sales is given for granted. When you run a business you (should) know that in order to sell you must spend some money. Cost of sales might include the cost of purchasing a product or service, the cost of distribution and cost of marketing and advertising for that product or service.
When we consider this concept within private practice we can mention, among cost of sales the hire of a venue to supply your therapies and the direct cost of advertising. Most people in private practice would love to have a queue of clients waiting in front of their door but, most of them, don’t have it.
I was chatting with one of our therapist earlier this week and she was complaining, despite having a fully booked schedule, about the cost of her online advertisement. I was curious so I asked how much the advertising costs was and how much income the advertising was generating. The answer was respectively £240 and £2400 per month, while working one day per week. My immediate answer was that I would love to play a game where I get £10 every time I spend £1.
From her point of view a 10% direct cost of sales was too high and she would love to earn the same amount of money without spending a penny; fair enough, but unreasonable. So I explained that with adequate marketing and the correct image she could probably raise her prices by £5 or £10 per session and further increase her profits. By the end of it she was satisfied that having a medium-high net income, without costs, would be great but it’s just no practically possible and agreed with me that she is in a good position from a business point of view.