Meeting Topic
INTRODUCTION FOR MEETING TOPIC:
When was the last time you considered your product or service ‘mix’? Do you KNOW which of your offerings are the most profitable (it’s not ALL about $$$)? As you read the article below, consider your business growth strategy when it comes to your product ‘mix’. Which of your products or services would YOU be best served to expand?
Do you have the right sales mix? By Serena Irving
If you offer a variety of products or services, which ones do you want to grow? Rather than focussing on ALL your revenue streams, why not focus on the ones which give you the best returns?
WHAT IS ‘SALES MIX’?
Your sales mix is the proportion of each product/service your business sells relative to total sales. (Source: Investopedia.com) Some items are more profitable than others, so if you boost sales of those items, you could be doing better than you would by getting the same increase in lower profit items.
HOW TO CALCULATE GROSS PROFIT PER ITEM
Gross Profit for product-based business is the difference between Sales and Cost of Sales. Cost of sales includes the cost of buying the product materials, manufacturing and other labour, packaging, freight. You should also consider the cost of marketing, if you’re targeting your advertising and promotion efforts to a particular product.
Gross Profit for a service-based business is the difference between Sales/Fees earned and Cost of Labour. If you’re providing the labour, then factor in the salary you want to pay yourself.
A PRODUCT EXAMPLE:
Assume that you sell two items:
- A skin care cream for $50, costing you $20. Your gross profit is $30 or 60% of sales ($30 ÷ $50).
- An anti-ageing serum, concentrated formulation for $200, costing you $40. Your gross profit is $160 or 80% of sales ($160 ÷ $200).
If you sell another $2,000 of skin care cream, that’s 40 additional units at $30 gross profit each for an additional $1,200 gross profit.
If you sell another $2,000 of anti-aging serum, that’s only 10 additional units at $160 gross profit each for an additional $1,600 gross profit.
Assuming there are no other barriers to production, then it would appear to be better to focus your growth strategy on selling more anti-aging serum, as you need to sell fewer products to earn a higher gross profit.
‘Production Barriers – What are you talking about, Serena?’
It may not be a simple case of selling more of Product B than Product A. You need to consider other factors too:
- Minimum order quantities
- Shelf life
- Storage requirements
- Production, logistics capacity
Using our product example, perhaps the anti-aging serum can only be ordered in batches of 100. You know you can comfortably sell 100 but you won’t want to order another 100 if you’re only planning to sell another 10. $4,000 for the extra batch is a considerable cost. Perhaps it has a 3-month shelf-life, so unsold stock will be wasted. Perhaps the serum has to be stored in a freezer to extend its life and your freezer is already full. Perhaps you can’t get enough of the secret ingredient because of production shortages or shipping delays. Work your way through these considerations, and see if they can be overcome.
A SERVICE EXAMPLE:
Assume that you have two services:
- A membership subscription for $100 a month, allowing subscribers to self-serve, download relevant coaching materials and watch videos. You have already created the platform and all the content. It takes about an hour to onboard and retain a new member at $150, so there is $1,050 gross profit from a 12-month subscription. The fixed cost of ongoing website hosting and maintenance will be there whether you have 1 or 100 subscribers.
- A one-to-one coaching package, 15 hours of your time for $7,500. Most of the time is discussion, but you will sometimes direct the client to specific videos in the member platform. You have decided that a fair rate of pay for yourself is $150 an hour. You make $5,250 gross profit from the coaching package.
One coaching package will earn you the same gross profit as five membership subscriptions but will take up fifteen hours instead of five. Assuming all other factors are the same, then it would be better to focus your growth strategy on the memberships.
DON’T NEGLECT YOUR OTHER SERVICE!
You may be forgiven for thinking that if you put all your time into Service A you won’t have to offer Service B. Using our service example, people will only sign up to the membership if they can see value in your coaching, so you have to show your credentials as a coach. The members are also a warm audience for selling your coaching and workshops. The two service offerings support each other.
Imagine if you were still building your membership platform. You would have a totally different calculation. It wouldn’t be profitable for quite some time, because the website development, videoing and editing would be upfront costs that you had to fund before you got even your first member.
What service do you enjoy providing? Perhaps you would rather spend 15 hours coaching than 5 hours onboarding and maintaining a membership platform. If you really enjoy it, it won’t seem like work.
In summary, review your sales mix and focus your growth strategy on the products or services which give you the best returns, either in profit OR fulfilment.
Serena Irving
Serena Irving is a director in JDW Chartered Accountants Limited. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.
A well-written article like this, which is general in nature, is no substitute for specific accounting advice. Please contact the author if you have further questions. https://www.jdw.co.nz/about_us/our_directors
Next Meeting Topic
This fortnight’s article is contributed by Angela Porfiriadis-Walker from Core HR to kick off our People Pillar for this year. As you prepare for your upcoming 60-second introduction, read the article and consider how YOU can become a better ‘people’ manager or leader – even with people you don’t employ! Perhaps it’s your accountant or V.A. Perhaps a contractor who helps you complete work when you’re uber-busy. Remember – how you show up as a manger or leader can make or break their day (and possibly your business!).
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The ‘Work’ of Managing Your People by Angela Porfiriadis-Walker
Being a manager of employees can be HARD. Your team can leave you bursting with pride… or bubbling with frustration. The same challenges can be experienced when managing contractors or those other suppliers you have engaged to grow your business and thrive!
It’s hard to be responsible for your work, but now you are responsible for the ‘work’ of others. Managing your ‘people’, no matter how that looks is one of the hardest parts of owning a business.
Here are 10 things you can do to be a better Manager (in all areas!) – WARNING, WHAT FOLLOWS IS NOT ROCKET SCIENCE (it’s just nice to be mindful of those things we forget in our VERY busy lives)
1. TELL THEM WHAT YOU WANT
Be clear in your expectations of what you want your ‘people’ to do. Putting it simply, they cannot read your mind.
If you haven’t told them what you need, don’t assume they will deliver. Next time someone underdelivers on what you wanted, ask yourself whether you specified EXACTLY what you wanted. Asked Tracey to send an email to Mrs Smith on her recent order? Annoyed she emailed Joy Smith and not June Smith? It’s on you.
2. SAY PLEASE AND THANK YOU
As children, we are taught common manners. We must say ‘please’ when we ask for something and ‘thank you’ when we receive it. Amazingly, we seem to forget these common courtesies in our work life. Saying please and thank you is a very small act of appreciation and recognises what your ‘people’ are doing (or have done) for you. And if you are that person who’s into issuing directives “I direct you to do this now”, please – just stop.
3. REGULARLY ASK QUESTIONS (SO IF A DIFFICULT SITUATION COMES UP, IT’S NOT SO AWKWARD)
If Brent, your website designer has created imagery which does not reflect you or your brand, ask them about it. Don’t leave it to the internal monologue:
- “It’s against my values which I have emailed over, but maybe he had a look at competitors’ websites; I DID ask him to get it to me quickly…” (You’re assuming the whole mind-reading thing again).
If Brent’s continued designs and suggestions are not appropriate, you will get frustrated. When you do bring it up, he will wonder “where has this came from?”. It’s the same principle for if Sally is late to work (“
but she lives out east”) or Donna who didn’t submit her report on time (“she’s had a busy week”)
If your people are used to you asking questions, they won’t be as defensive if you DO need to challenge something in the future. (Also, if you had innocently asked the very first time, they may have thought twice before repeating the same behaviour!)
4. DON’T SOLVE EVERYTHING FOR YOUR TEAM OR PEOPLE… OR YOU ALWAYS WILL.
Your job is to enable your people to do their job. Not do their jobs for them. Yes, you are very experienced. Yes, you may know the answer. Should you always tell them the answer straight away? No. Should you take it over and do it for them because it’s ‘easier’? No. Ask yourself how did you learn those answers? By doing it. Don’t rob your people of the opportunity to improve or learn.
Don’t fall into the trap of us control freaks (I think I can safely say there are a few of us out there). Ask questions. “Where do you think we could find the answers?”, “What are the options?”, “What would YOU do in my situation?”. Yes, sometimes it is much faster to do it yourself. But it’s only going to make you resentful long term – and it’s what you are paying someone to do.
5. LET YOUR PEOPLE FAIL… AND FIX IT THEMSELVES
As a junior HR person, processing payroll, I had an irate employee threaten legal action when their final pay was incorrect. Mortified, I confessed to my Finance Manager. Her response (with a smile) was “I know. You didn’t check the leave calculations. Better fix it then”. I was dutifully chastised. I spent 2 hours recalculating, gave a long and heartfelt apology, and thereafter have NEVER made another mistake with a final pay again.
The best way to learn how to do something well is to do it wrong, and then have to fix it. Failure is uncomfortable and undoing or fixing a mistake is painful. Humans are naturally inclined to avoid repeating an unpleasant situation. If you can let your people make a mistake without impacting business too much, let them. Then be ready to help them navigate through fixing it!
6. BE AN EXPERT IN YOUR PEOPLE
No matter how you have engaged with your people, there are two things you should memorise about each person if you can. If you don’t know these things, get cracking!
– What do they think their Strength is? (Their view – not yours)
– What do they think their Weakness is? (Their view – not yours)
Understanding strengths and weaknesses will help you allocate/organise work, overcome barriers, know what info you need to be super clear on and ultilise untapped skills. The benefits are endless! The more you know about each person, the better.
7. RECOGNISE THEIR EFFORTS BY UNDERSTANDING
Recognition doesn’t need to be some fancy pants HR program providing certificates and rewards for an overly complicated set of criteria. It doesn’t need to be a hamper of condiments (you are paying them already). Recognition is strongest when it is based on understanding. Show your people you understand. You understand the effort they expended to get it done. You understand the painful elements of what they would have encountered.
Talk with authority as to what happened and how they would have felt. Managed a customer complaint? “Sheesh they seemed super annoyed at the beginning, but you managed to turn that around”. Finished a long painful project with a demanding business owner (that’s you!)? “Wow, you’ll be pleased to have tidied that one up! I know it was a long one but it’s really going to make a difference to my business” or “That was awesome, and I loved the graphs. I was blown away”.
8. DON’T BE YOUR OWN NIGHTMARE
Think of the worst boss or client you have ever had. What did they say or do to earn them this illustrious title? Don’t do it. Be conscious and recognise when you start emulating the same behaviours.
Were they dishonest? Pride yourself on being open and transparent. Did they give you jumbled instructions? Be precise and organised in your communications. Did they have anger management issues? Catch your own anger before it boils over.
9. RECOGNISE YOUR POWER AS A MANAGER, BUSINESS OWNER AND CLIENT
As a manager, you have a magical power. You can make or break your team’s day. Your behaviour and attitude at work (and in life) is contagious. As a leader, your attitude is 10x more contagious than anyone else’s.
As you know, being a client also has magical powers. Their praise can make us soar, get us through the next working month, help us deal with another difficult client. They can also crush us, drive us to distraction and make us wonder if this ‘biz gig’ is worth it.
When you have a bad day, you can guarantee it will flow through your team and those suppliers you engage with. We have all been there. Bossman arrives at work and a darkness descends on the whole office. Client calls and starts the conversation with “we have a big problem and you need to fix it!” That’s it, day ruined, sinking heart and lump in your throat. If you approach your people with an upbeat and success-driven attitude and show them how much you appreciate their part in your business, then you can inspire a fantastic and productive day.
10. BE YOUR NATURAL SELF
Just be you. Don’t try to change into what you ‘think’ a good business leader or manager is if it doesn’t feel right or natural. Don’t try to copy someone else’s style or over-inflate what you do. ‘Fake it to make it’ is not genuine. It’s more important that you recognize how to leverage your own personality, strengths and weaknesses than pretending to be something else. You’ll hate it and your people will see right through it. Honesty builds rapport and rapport builds strong relationships.
Being a manager and/or a business owner can be hard, and even the most experienced and inspirational leader or business leader will say it’s an endless cycle of learning. There is no magic formula for being a Great Business Owner and powerful leader, but I can guarantee it can be one of the most rewarding experiences to see your team and your business THRIVE!
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Core HR is an HR consultancy for SME and Business owners. We are dedicated to providing cost-effective and comprehensive solutions for small businesses to effectively manage their HR needs across HR, Recruitment, Training and Health and Safety. Find out more at: www.corehr.co.nz
