Q: I was looking on the website for a good Cost Recovery Model that we can use in our Recreation Department for setting prices for programs/classes. Can LERN help?
A: The LERN financial formula is what we recommend for setting prices and determining income for classes and programs. Basically, we look at three things:
1. Promotion Costs
2. Production Costs
3. Operating margin
We know that successful program need to generate an operating margin of around 50% in order to financially self-sufficient. We stress financial self-sufficiency because this is becoming increasingly important in a world where funding from outside sources is more difficult to obtain.
Your promotion costs should be between 10% and 15% of your income.
Your production costs (Instructor compensation, is the main component of production costs, but if you are paying for materials or facilities, these would also be considered production costs.) should be between 35% and 40% of your income.
Promotion and production costs combined should not exceed 45% to 50% of your income. The amount you have left, after covering your promotion and production costs is your operating margin.
This margin is what you have left to pay your general and administrative costs, add to your surplus goal, etc. This model has proven to be successful for LERN members and working to achieve the benchmarks for production and promotion costs can make your program more financially successful.