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Guidelines: management rules of thumb.

Rules of thumb are rough guides to behavior based on the experience of others. Everyone uses rules of thumb every day. Some of them are picked up from others, while some develop through trial and error.These rules of thumb have been collected over a period of many years. Read them to gain insight, guide behavior, and help build for yourself an utterly unjustified confidence that the practice of management can be made predictable after all.

One-third, one-third, one-third--the typical components of a tradesman's bill. One-third goes for the raw material, one-third for labor costs, and one-third for overhead and profit. Trades people have a simple business model.

Unlike retailers, who typically have to invest in an attractive building, extensive marketing, and high distribution costs to get merchandise into their buildings, trades people mostly need labor, raw material to build or install, profit, and relatively low administration. They come to you, so they don't need to impress you with their building.

1--the absolute maximum number of hours in the average adult's productive attention span without a break. It's the reason why conference seminars usually never exceed 90 minutes, and why people get up and take breaks on their own when a formal meeting or training session runs more than 90 minutes or so. For educational settings, especially without an interactive component, 75 minutes is better.

2.5--the number of times to multiply a single individual's health insurance cost to estimate the cost for the family plan. An insurance company offering a $3,000 per year policy for a single individual is likely to charge about $7,500 for the family plan.

3--number of years it should take for a new, in-house fundraising program to break even.

4 percent--average profit registered by nonprofits that make a profit.

3-6 percent--the typical broker or sales person's commission. Real estate brokers typically get 6-7 percent of the sale price of a house if they list and sell it. Car dealers operating at sufficient volume often get about a 3 percent quarterly "rebate" from the manufacturer for each car sold.

3-7--the typical range of categories into which, over time, a management team will sort most large groupings of information. As in, three to seven goals for the year, three to seven people on a committee, three to seven clusters of tasks, etc.

5 percent--a rough figure to use to determine the total rental revenue potential for an average residential property. Multiply the market value of the house by 5 percent to get a rough idea of the total rent the owner is likely to charge.

7--maximum number of variables that most people can remember without making a mistake. This is the reason why the first telephone numbers, without the area code, were seven digits long. It's also the reason why anything with more than seven variables, after being introduced to a large number of people, will either be ignored or pared down to a manageable size (see "3-7" above).

8-12 percent--typical overall occupancy costs for most types of nonprofits when occupancy involves standard commercial or residential property at or close-to-market rates.

10 percent of payroll--a good planning figure for the cost of mandatory payroll taxes and benefits. Social Security and Medicare take up 7.65 percent of an employee's paycheck (up to a certain amount). Then there's the cost of unemployment insurance and worker's compensation.

Each varies by state and by employer characteristics, but unemployment usually takes up a bit less than worker's compensation because unemployment benefits are capped at a certain dollar amount and can't exceed certain time limits, whereas worker's compensation claims can be quite expensive and/or prolonged. Figure on about 2.5 percent between the two, for a total of around 10 percent of all payroll dollars.

10--the number of years that many fundraising specialists say a nonprofit should run a successful development program before attempting a capital campaign.

15 percent--a very good profit for a for-profit. Only about 10-15 percent of all companies make this level. Typically, profitability goes by industries because individual companies find it hard to buck the tide.

$20M--the approximate amount of total yearly purchasing that a purchasing professional can be expected to handle. The reason why small and even many larger nonprofits can't afford to have anyone who does purchasing full time.

50-60 percent--is the level of productivity typically achieved by production-oriented professional employees such as clinicians. It would be 100 percent if those employees never took vacations, got sick, enjoyed holidays, attended non-productive meetings, did administrative things, made scheduling mistakes, or goofed off.

67 percent--a good estimate of the minimum number of clients attracted to a given nonprofit program from within a radius of 10-15 miles around the program service site.

100-125--is the approximate number of employees a human resource professional can be expected to handle.

175-250 ft.--is a good planning number for a typical modest office size. This tends to refer to newer construction, since older office space is typically larger or less easy to renovate to modern standards.

200-500 times--estimates a professional consultant's approximate gross salary, multiply their standard billing rate by a number from 200 to 500. Use a number closer to 200 for low overhead or lower value consultants. For higher value and/or higher overhead consultants (such as specialized lawyers or nationally renowned experts), use a number closer to 500.

300-500 percent of the money donated--typical cost of acquiring a new donor in an annual development program. Don't worry, though: in subsequent years, this number should drop to around 20 to 30 cents per dollar of revenue brought in. It takes a lot of money to gain a donor. Treat them well.

Square root of total membership--the maximum number of leaders in any task group, such as a board of directors or a management staff. The number of true leaders will never exceed the square root of the total number of group members. A 16-person board of directors will have no more than four (or fewer) leaders; the l00-person United States Senate has 10, etc. Why? Because there's no room for any more.

1,300--average number of words in each month's Streetsmart Manager column, even though this one is around 1,100. Why? Because there's no room for any more.

Thomas A. McLaughlin is a national nonprofit management consultant with Grant Thornton in Boston. He is the author of Streetsmart Financial Basics for Nonprofit Managers and the forthcoming book The Art of Strategic Positioning: Decide Where to Be, Plan What to Do (John Wiley and Sons, 2005). His email address is thomas.
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Title Annotation:Streetsmart
Author:McLaughlin, Thomas A.
Publication:The Non-profit Times
Article Type:Column
Geographic Code:1USA
Date:May 1, 2005
Previous Article:Calendar.
Next Article:Prospecting for donors: the house might be big, the target cash poor.

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