February 13, 2011 Sunday, Feb 13 2011 


Welcome to this week’s Premier Business Operations newsletter…

So the first month of 2011 is behind us…  have you made any adjustments to your marketing strategy from last year?  The longer you wait to take action, the deeper hole you will find yourself standing in.  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.   I also wanted to thank everyone that has gone to our Facebook page and become a fan of Premier Business Operations.

This week’s newsletter is a follow-up to the  January 30 newsletter  where I introduced the three lifelong friends Johnny, Bruce and Mike.  (more…)

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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…

November 28, 2010 Sunday, Nov 28 2010 


Welcome to this week’s Premier Business Operations newsletter…

Hopefully everyone has recovered from their overdose of Thanksgiving-induced tryptophan by now and enjoyed a relaxing long weekend with family and friends.  In the last newsletter, we started a discussion of the 4Ps, more specifically product price.   Of course, before considering the price of a product or service, the small business owner must have an understanding of the cost of doing business: the costs of producing the products that he or she sells, but also all of the overhead costs of operating a business.  In this newsletter, we expand on this by revisiting my friend Annie and her maple syrup business. 

As you may recall, I left my friend Annie with a little homework assignment to attempt to itemize the cost of producing her products:  preserves, chutneys, salsas, maple syrup and gift baskets with those ingredients.  As a side note, I heard the maple syrup glazed turkey was spectacular for Thanksgiving causing my mind to wander as I think about it.  After a lot of procrastination, she put together a few hand written notes.  It was tough for Annie to estimate costs on a per item basis, but she did a good job for the bulk production.  This table represents the cost production for 2 gallons (256 oz.) of bottled maple syrup and assumes a labor rate of $10 per hour:

  • 100 gallons of sap (4 hours labor involved collection)….$40
  • 8 hours labor of boiling down to syrup…………………………$80
  • 8 oz. bottles……………………………………………………………….. $0.50 each
  • Labels for bottles…………………………………………………………$0.25 each
  • 2 hours labor bottling and labeling finished bottles………$20

Since Annie and her husband own the sugar maple trees and property, it’s difficult to place a value on the actual sap so as long as the trees continue to produce sufficient sap, we’ll assume the cost of the raw product is 0.  Of course, if Annie was to expand her maple syrup production she would need to locate an additional source of raw sap.

Using the numbers that Annie came-up with, it can be determined that the production costs of as single 8 oz. bottle of maple syrup is $5.13.  After we calculated these figures, she was surprised by the final total, especially since she has only been selling the bottles of maple syrup for between $5 and $7.  While Annie wasn’t exactly thrilled with this information, she now knew that she was probably not exactly getting rich with this endeavor and she really wanted this hobby to be something that was more than a hobby.  It’s also important to note that these costs are only the variable costs of her business. 

There are still the fixed costs to keep in mind; in Annie’s case this is currently limited to farmers markets entrance fees; state and federal taxes; not to mention the initial investment in production equipment (tubing, evaporation vats, etc.).  Whether Annie sells 0 or all 32 bottles of maple syrup, these costs are still to be paid.  

While Annie’s business is a relatively simple one, it represents an important lesson as a small business owner – understand the costs of your product and the true costs of doing business This is especially important if you are the owner-operator of your business.  Even if you’re not actively working for a client or producing products, more than likely you spend significant time on marketing, billing, free consultations with prospective clients, networking events, etc.  These are non-billable hours and need to be accounted for in your overhead expenses.

So this week’s message from Premier Business Operations is make sure that you understand the true costs of your product or service.  Without this basic knowledge, it’s impossible to know the best places to trim costs when necessary or as we’ll see in a future edition of this newsletter how to price your product or service to be competitive and still make a profit.  A good exercise for any readers that have a small business or are considering starting one is to list out some of the expenses, both fixed and variable that you will encounter.

To find out more about Premier Business Operations and how we can help you better understand these costs or help your business grow, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Cheers until next week when we’ll continue our discussion of the 4Ps and their importance…

November 21, 2010 Friday, Nov 26 2010 


Welcome to this week’s Premier Business Operations newsletter…

Recently, I had a conversation with a longtime friend of mine, Annie, regarding a business that she was struggling with.  For many years, she has canned a variety of preserves, created various chutney and salsa recipes as well as crafted her own maple syrup.  Her kitchen is always filled with the most wonderful aromas and one can easily gain 10 pounds by merely stepping into her kitchen.  I haven’t a clue how she stays so thin.

For the past several years, Annie has sold much of her products at various farmers markets, but has always struggled with how little money people will typically want to pay for something at these events.  After all making these items is very time consuming and she always took the time to package them in colorful bottles or jars, with fancy homemade labels.

Annie’s basic struggle was that she wanted to see her business grow beyond its current modest income.  During our conversation, I asked her if she ever heard of the 4Ps.  She thought I was changing the subject and was talking about a music group, but what I was referring to was the 4Ps of product marketing:  product, price, placement and promotion.  Having an understanding of the 4Ps is critical toward building a successful business, no matter the industry or market.

For this newsletter edition, I’ll focus on the price or more accurately a key component of product pricing, the true cost of the product.  The pricing of a product is an area that many entrepreneurs struggle with, especially for a new product such as an IPad.  In Annie’s case, while her products were somewhat unique, they were not necessarily ground-breaking.  To begin the conversation of pricing, I asked Annie is she had an idea what her product costs were.  After a few “uhs and wells”, it was obvious to me that Annie really didn’t know what it cost for her to produce these products nor did she ever keep records for what she may have paid for jars, labels, fruits, etc.

So I left Annie with a homework assignment.  For each product that she was interested in selling, list out the materials involved (raw materials, jars, labels, ribbons, bows, etc.).  She thought we were done and closed her notebook, but she was in for a little surprise when I asked her to also list out “other costs.”  She wasn’t exactly sure what I meant by this, but the obvious one is labor.  Each of the products she produces is time consuming and those 12 hours boiling down maple tree sap to create syrup should not be ignored.  Then there are the other costs involved such as:  rental time for a commercial kitchen, which has become a requirement of many farmers markets and other retailers.  Other overhead costs that she never considered were farmers markets entrance fees, various taxes, transportation costs (of the raw products and finished goods), credit card merchant vendor fees, etc. 

So this week’s message from Premier Business Operations is make sure that you understand the true costs of your product or service.  Without this basic knowledge, it’s impossible to know the best places to trim costs when necessary or as we’ll see in a future edition of this newsletter how to price your product or service to be competitive.

To find out more about Premier Business Operations and how we can help your business grow, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Wishing you and your family a Happy Thanksgiving.