Earlier this week I was having lunch at a local Italian restaurant.
It was one of those places with an open kitchen, and I was seated with a clear view straight into the prep area. I noticed one prep-cook weighing mixed greens, portioning out each side salad precisely. Greens into the bowl, bowl onto the scale, add a little, remove a little. Very precise.
Now this is a perfect example of a business that has done its homework on “what does their stuff cost?”
Obviously this restaurant won’t survive selling $10 salads if the prep-cooks are loading in $15 worth of spring mix. We all get that. But you’d be surprised how many businesses don’t look past the simple, obvious price vs cost-of-materials calculation.
The $10 I’m paying for lunch has to cover the direct costs of ingredients, with room to spare. That $10 also has to contribute to paying overhead costs, like the prep-cook’s salary and benefits, the electricity to power the scale, the bowl and tongs she’s using, the salad in the fridge that gets thrown out at the end of the day… The true cost of that salad goes way beyond the spring mix she’s weighing.
It gets even more complicated when you’re not selling something you can put in a bowl and weigh. Service-based businesses need to take a very close look at how their people spend their time, because time IS money, and it often comes as a surprise to my clients — even when they know where they’re spending their money — to see where they’re spending their time.
For example, in this lunch analogy, it doesn’t make sense for the head chef to weigh my salad. She needs to stay focused on searing my salmon to perfectly caramelize the maple syrup glaze.
I work with a lot of business owners who resist hiring an admin assistant because of the ‘cost’. But then, when we calculate the time found vs dollars spent, they realize that hiring someone to get stuff they don’t have time to do, stuff they don’t like to do, or stuff they’re not good at doing, actually increases their profit a hefty amount!
But first, you have to ask the questions and measure the costs.
“What amount of mixed greens makes a good salad, remains cost-effective, and prompts Anne to leave us a great review on Yelp?”
What stuff costs isn’t the only thing but it’s a wicked important thing. Businesses that take the time to understand really what it costs to deliver their products or services are in a much better position to ensure healthy profits, effective pricing, happy customers, repeat sales and all those wonderful things that create business success.
Do you know what it really costs you to deliver your product or service? What are the first steps you’d take to figure that out? If you’d like some clear direction, book a complimentary, 1:1 Keep More Money Strategy Session with me! I’d be happy to help you take a harder look at where profits might be hiding in your business.