How do we set Sequencing Recharge Rates?

The Core's recharge is determined based on the following precepts:

  • All University researchers should get the cheapest sequencing possible.
  • The Core is not allowed to profit - or to lose money.
  • Given the above two points, discounts have to come from somewhere.

The Sequencing Core is expected to provide the best possible service at the cheapest possible price. Unlike a true business, we must break even - no profits or losses are allowed. This has some clear consequences regarding our recharge structure. We simply set the recharges to recover our expenses as closely as possible. Each sample must bear a roughly equal share of the cost burden (with certain exceptions detailed below).

So what goes into the calculation of our recharge?

Here's how I go about it:

  1. Add up our expenses.

    Most of the expenses of the Core lab are very regular and predictable, including:

    • Personnel: currently eight techs, a computer tech, the Sample Clerk and the Director
    • Terminator dyes (and other reagents, gel mixes etc).
    • Service contracts: we have to keep the sequencers going no matter what.
    • Instrument depreciation: sequencers must be depreciated via recharges, but that allows us to save for future instrument upgrades.

  2. Add up the total number of samples we'll be sequencing.

    This isn't so easy, and it makes a huge difference on the calculation. Basically, I project our future growth and take into account any expected changes in personnel or instrumentation. It's not science, it's voodoo. Fortunately, I've been able to estimate out volume quite accurately for many years.

  3. Divide total annual expenses by the number of samples processed annually.

    That sounds easy.

  4. Figure out who gets discounts.

    Nobody gives the Core something without expecting at least an equal return, dollar for dollar.

    • Centers who provide funds up front get discounts in return. They get back exactly what they give, dollar for dollar, via the Cap mechanisms we use. Currently such Centers include UMCCC, EEB and one program-project.
    • External clients pay a surcharge to compensate us for the extra expense and effort of handling shipped-in samples, tracking purchase orders, and performing the external billing. a profit-based entity.
    • Bulk submitted samples get a price break, for three reasons:
      • We can parallel-pipette them for improved efficiency;
      • They usually don't require standards;
      • We process them at a lower priority;
      • They can often be processed with reduced reagents.

The Office of Financial Analysis Approves the Recharge

We must document our expenses to the OFA in order to gain their approval for a proposed recharge rate. If they see inappropriate expenses or inordinate costs, they will deny the request. That office also periodically audits our accounts to verify that we are maintaining neither an excess of funds nor a deficit.

Periodic reappraisal

It is impossible to anticipate all expenses and to accurately predict the number of samples we'll be processing. Thus, there is some error in the spreadsheets. The Bottom Line for a Core is (i) the Clients' satisfaction, and (ii) the account balance sheet. We have to constantly monitor the balance of our recharge account, and weigh it against encumbrances. If we run a profit, we must not only stop overcharging, but must give our clients the benefit of any excess funds. That means we periodically have to decrease our recharge rate.

Subtle Points

The Sequencing Core has been fortunate in that we have maintained an outstanding rate of growth over the last 5 years, and more growth means better efficiency. Consequently our per-sample recharge has dropped from $100 (1993) to $50 (1994) to $35 (1995), $30 in ~1996, $25 in 1997, $20 then $16 in 1999, $10 in 2001, then $8 later in 2001, $6 in early 2003, $5.20 in mid-spring 2003, $4 in late summer, 2003 and $3 in Jan '07 (temporarily rescinded - back to $4 until forther notice). Each of these decreases were due to growth in Core size, to growth in client base and to improvements in cost efficiency.

Growth requires a bit of risky maneuvering, in fact. Whenever I decrease the recharge rate, I in fact drop it below the break-even point. We actually are losing money for a few months. Price drops, however, also promptly stimulate business, so we soon are back in the black due to growth.