February 27, 2011 Sunday, Feb 27 2011 


Welcome to this week’s Premier Business Operations newsletter…

So we are now 2 months into 2011… how are your numbers comparing to same time, last year?  Better or worse?  If worse, have you stopped to consider why?  The easy answer is the economy, but what can you do differently?   Remember, the longer you wait to take action, the deeper hole you will find yourself standing in.  Before I dive into this week’s newsletter, I just wanted to remind readers that previous editions can be found online at our blog or alternatively by going to the Premier Business Operations website.  I also wanted to thank everyone that has gone to our Facebook page and become a fan of Premier Business Operations.

For those of you that have not followed Premier Business Operations on Facebook, earlier in the week I posted the question, “how will rising fuel prices affect your business?”  In case you’ve been living in a cave, prices at the pump are up 24% from a year ago and 10% since the beginning of the year. (more…)

December 27, 2010 Monday, Dec 27 2010 


Welcome to this week’s Premier Business Operations newsletter…

I hope that you had a wonderful Christmas day shared with family and friends.  Hopefully, by now all of the wrapping paper, ribbons, gift bags have been cleaned up and your homes are back to normal.  From everything I’ve been reading it has been a good season for many retailers, so hopefully the economy is starting to look up for many of us.   Before I get into this week’s newsletter, I just wanted to remind readers that previous editions can be found online at https://premierbusinessoperations.wordpress.com/ or alternatively by going to the Premier Business Operations website:  www.premier-business-operations.com.

Since we’re coming to the close of the year, I thought this would be a great opportunity to list my ten resolutions for small business owners or entrepreneurs… (more…)

December 19, 2010 Sunday, Dec 19 2010 


Welcome to this week’s Premier Business Operations newsletter… 

Before I get too deeply into this week’s newsletter, several readers have asked about previous editions.  You can find these online at https://premierbusinessoperations.wordpress.com/ or alternatively by going to the Premier Business Operations website:  www.premier-business-operations.com.

During the past month we’ve been examining my friend Annie’s maple syrup enterprise, especially her product and operating costs.  If you recall, we needed to take a hard look at these costs in order to help us determine an appropriate pricing for her product.

To summarize what we’ve seen so far, her product costs for each 8 oz. bottle of maple syrup was $5.13 and in the last newsletter we itemized many of the operating expenses as well.  These included items such as: 

  • Site or entry fees for tables or stalls at:  farmers markets, craft fairs, flea markets or other festivals.  This was estimated at $1500 per year.
  • Cost of rent for a commercial kitchen.  This was estimated at $500 per year.
  • Maintenance, gas and insurance of her truck and travel costs from event to event.  This was estimated at $500 per year.
  • Taxes.  We determined that the combination of state and federal income taxes would be 31%.  This would be calculated from the net income.

In the last newsletter, we also researched some competitor prices for an 8 oz. bottle of maple syrup and found an average price of $11.12.  You may recall that when I first began to speak with Annie about her maple syrup business, she was selling her product at prices that varied from $5 to $7, “depending on her mood” (her words).  Since she will not be selling again until 2011, I told Annie that this would be a good opportunity to examine different pricing scenarios.  I really did this in an effort to demonstrate to her that she is probably “leaving money on the table” by charging so little.  For the purposes of these scenarios, we used the same number of bottle she sold this year, 400.  Let’s see how well she can do…

Sale price $ 5 $ 7 $ 9 $ 11
 
 Revenue for 400 bottles
   $ 2,000  $ 2,800  $ 3,600  $ 4,400
 Cost of product
   $ 2,052 $ 2,052 $ 2,052 $ 2,052
 Profit from sales
   $ (52)  $ 748  $ 1,548  $ 2,348
 Operating Expenses
 Entry fees $ 1,500 $ 1,500 $ 1,500 $ 1,500
 Kitchen rent $ 500 $ 500 $ 500 $ 500
 Transportation $ 500 $ 500 $ 500 $ 500
 Total $ 2,500 $ 2,500 $ 2,500 $ 2,500
 
 Net Income
   $(2,552)  $(1,752)  $ (952)  $ (152)

 

After I showed Annie the figures above, she was in disbelief.  She always thought that she was at the very worst breaking even!  So now what?  Annie is faced with several options:

  • Sell more maple syrup.  At each price level, there is a breakeven point that will cover her operating expenses.  It should be pointed out that there is NO breakeven point for the $5 sale, where she is losing money on every bottle.  At the $11 price, the breakeven point is 426 bottles, so she is close.  But if she is reluctant to raise her price beyond $9, then her breakeven point is 646 bottles.  Of course selling more maple syrup causes her to produce more she has in the past.
  • Raise her sale price.  This is a given.  It is impossible for Annie to ever profit from this venture unless she is willing to raise the sale price of her product.
  • Reduce her variable costs or her “cost of product”.  Since producing maple syrup is such a labor intensive job, the best options of reducing costs is by finding lower cost bottles (50 cents) or labels (25 cents).
  • Reduce some of her fixed operating costs.  Fixed costs are typically the most difficult to reduce for most businesses due to items beyond the control of the business, such as fuel prices.  In this case, Annie might consider: using a vehicle that gets better gas mileage; only selling at events with lower entry fees; identify a commercial kitchen option that may be less costly, such a church.

As usual, I left Annie with some things to think about…  I’m sure she hates me at this point since she has always told her husband that she is making money with this venture.  I think I’ll leave that one to Dr. Phil.  Hopefully between now and next spring, she’ll have figured out some options to turn her maple syrup business into a profitable one.  I’ll look in on her sometime early in the year to see how she’s doing. 

Key takeaway for readers…  whether you’re currently a business owner or aspire to be, it’s never too late to review the pricing strategy and costs of your business.  Being a small business owner, every dollar matters.  To find out more about Premier Business Operations can you better understand and reduce your costs, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Have a great week…  and don’t forget to keep tabs of your dollars…

December 12, 2010 Sunday, Dec 12 2010 


Welcome to this week’s Premier Business Operations newsletter…

Before I get too deeply into this week’s newsletter, several readers have asked about previous editions.  You can find these online at https://premierbusinessoperations.wordpress.com/ or alternatively by going to the Premier Business Operations website:  www.premier-business-operations.com.

Hopefully you remember my friend Annie, the enterprising maple syrup entrepreneur.  When we last left Annie, she was struggling with trying to figure out how to make her business profitable.  In a previous newsletter, we helped Annie calculate what the costs of her products were.  Armed with this knowledge, we can now look at other factors that may be involved in determining the price for her 8 oz. bottle of pure maple syrup.

There are many factors that feed into setting a sale price for a product.  While not a comprehensive list, things to consider besides the cost of production include:

  • What are competitor prices?
  • What will the market bare?
  • What overhead costs must be covered?
  • Who is the prototypical customer?
  • What net income do you want to make?

Examining competitor prices, both on the internet and a few retail shops, the average sale price of an 8 oz. bottle of maple syrup was found to be $11.12.  This research covered various regions in the US and specifically in the metropolitan St. Louis area; Annie’s territory to target.   You may recall from a previous newsletter, her cost of production was estimated at $5.13, so it sounds like she may be poised to be profitable if she is willing set an appropriate price on her maple syrup.

The next question for Annie that we’ll cover in this issue was an itemization of her overhead costs; those that are always present whether she sells 0 or 100 bottles.  While not a comprehensive list, here are some of the most prominent and overlooked ones:

  • Site or entry fees for tables or stalls at:  farmers markets, craft fairs, flea markets or other festivals.  She has been going to about 15-20 per year with a guess cost (unfortunately doesn’t have any records or receipts) between $50 and $100 each.  Taking the average of $75, she might spend $1500 per year simply on these site fees.
  • Cost of rent for a commercial kitchen.  The majority of locations that Annie sells her products require the use of a commercial kitchen for food preparation.  She uses these about 4-6 times per year at a cost of $100 each time, for an averaged total of $500.  Again, this is a guess since there are no records.  I think we should address the whole notion of sound record-keeping practices in a future edition of this newsletter.
  • Maintenance, gas and insurance of her truck and travel costs from event to event.  As previous areas, this is a guess since there are no records.  The best we could do was to estimate costs.  Assuming 20 trips for where she sells he products of an average 50 miles round trip, we simply used the IRS rate for 2010 of 50 cents per mile for a total of $500.  To have a more complete picture of this overhead cost, we doubled this amount to cover other errands necessary for the business.
  • Taxes!  No matter what your business, you need to account for The Taxman.  As my father has been saying for years, “the two constants in life are death and taxes”.  Since Annie’s business is an LLC, and her taxes are part of her personal income taxes, a reasonable estimate is the 25% bracket that she and her husband are in plus the Missouri state tax rate of 6%, for a total of 31%.

As before, I left Annie with a little homework assignment as well as a customized spreadsheet to help her calculate the net income of her business.  Hopefully when I visit her next, we’ll have a better picture of revenue, costs and net income of her business.  Using the provided spreadsheet should make her life a lot easier. 

Whether you’re currently a business owner or aspire to be, it’s never too late review the pricing strategy and costs of your business.  Being a small business owner, every dollar matters.  To find out more about Premier Business Operations can help you develop your business plan, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Have a great week…  and don’t forget to keep tabs of your dollars…