Solving the Profitability Epidemic in Surrey
There is a profitability epidemic lurking amongst manufacturing and trades businesses in Vancouver and the surrounding area. Although a large number of businesses are flourishing I have had the opportunity to meet with dozens of business owners of well established businesses who employ five to fifty people that struggle to break even. In many cases the owner earns the same as their employees and works over seventy hours per week. Not exactly what I would call “living the dream”.
Most blue collar business owners think that if we just work harder things will get better. It is time to stop working harder and to start working smarter. Make a few adjustments and in many cases the road to profitability is just around the corner. Now that’s good news!
Solving the Profitability Epidemic
Here are the 5 key areas of profitability and some of the components I review to improve profits and cash flow:
- Benchmark against your competition. You may be charging too little and leaving profits on the table
- Increase prices regularly. Customers expect inflationary increases. They will better accept small price increases on a regular basis than a large increase every few years.
- Monitor/control discounting by the sales team. Have firm controls in place. Giving discounts should be very painful for sales people.
2. Micromanage Labour To Improve Productivity
- Define your production goals clearly so that your employees understand what is expected of them. They will often rise to expectations you have set.
- Develop KPIs to monitor productivity. Decide on the measuring tools you need and keep a close eye on labour costs. Ratios measuring labour to sales is an easy and effective KPI.
- Outsource if there is not enough work to justify a position. Many business owners carry more employees than revenue can justify.
3. Review Production Processes to Minimize waste
- Build a waste factor into your COGS. Do you throw out unused product? Be sure to build a waste/spoilage factor into your product cost.
- Develop KPIs to monitor waste levels on a regular basis. Investigate when something seems “off”.
4. Itemize & Cost Every Component of Your Product
- Break down your production/service processes into every step. Account for all incidental labour in your costs.
- Factor any and all supplies used to produce your product/service into your costs.
- Account for all costs related to packaging. eg. Labels, master packs etc.
5. Ask For Lower Pricing From Suppliers
- This is often overlooked by many businesses. You will be surprised at how much money you can save just by asking for discounts.
Evaluating the above areas may seem to be no brainers but the fact is that most business owners get so tied up with fighting fires and daily tasks that they take their eye off the ball. The major difference between the profitable business and the struggling business is the owner’s attention to the five key areas of profitability.