A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
Appendix 1 Appendix 2 Appendix 3
• indirect costs: these are shared with your organisation’s core
activities (eg part of the normal costs of employing a manager
and administrator, and a share of central expenditure on rent,
heating, lighting, telephone, etc.); for new projects it should
include the staff time devoted to preparing proposals.
Use your judgement on what constitutes an indirect cost and
a variable cost. For instance, a project might be expected to
contribute a basic 33% to telephone bills or it could have its own
line which would be treated as a ‘fixed direct cost’. If there is a
very large telephone usage which fluctuates according to the
service provided, it might even need to be treated as a ‘variable
direct cost’ related to the size of the project.)
4. Understanding the way your service is delivered: When
you are calculating the unit cost of a service you are as yet only
planning to deliver (eg to prepare a proposal to a funder or
contractor) you must make absolutely sure that you are aware of
the physical limitations of your staff and facilities – sometimes
known as the ‘break points’. For example:
• Your Administrator may be organising staff to deliver 100 hours
of care at present, and may be capable of increasing this to 200
hours. But could the same employee handle 300 hours without
you needing to recruit and employ another admin worker to
help? This leap in staff costs would of course increase the costs
of providing the extra care.
• Another break point is the capacity of your office. You will
need to estimate accurately whether you have the space, the
telephone system, the computer facilities etc to provide new or
expanded services, and make provision for any necessary extra
expenditure.
5. Deciding on your ‘unit’: ‘Unit costs’ refer to what it costs
your organisation to provide a specified amount of service. In
organisations providing social care, for instance, the most flexible
and useful basic unit of cost will be “one hour of care”. In other
situations you might define the cost per day of training or the cost
per individual receiving advice. But the larger, more general or
vaguer the unit becomes, the more difficult it will be for you to
estimate the price to charge for your service, and to quote that
accurately in advance.
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