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Saving Money in a Food Business

One thing I appreciate about TV shows, specifically comedies, is that every show holds at least one valuable lesson that you take with you. Some hidden wisdom that can make you giggle in the moment, but holds a deeper meaning and impact on your life if you take it with you.

As I write this, NBC’s “The Office” comes to mind… If you know, you know; and for those of you that do, i’m sure a famous Dwight one liner is coming to mind. As much as I would love to sit here and write about my favorite Dwight moments, my plan is to recap a scene with Michael, Pam & Ryan. A scenario that I’ve personally witnessed in most of the food businesses I’ve worked for, a problem with an easy affordable solution.

Before I get into it, I want you to take a moment and think about how you price your products, but really think about it, from the selection of your ingredients, to ordering you materials, producing them, and then selling.

Thought about it? Good.

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Some background on what I’m about to tell you; Michael is the regional manager of a paper supply company who left his job to start his own paper supply company with two of his former colleagues. It didn’t take too long before they worked themselves to the bone and paid a visit to their accountant to see if they could afford to hire help.

Michael: How much can we afford to pay a delivery guy?
Financial Guy: Well, if these numbers you gave me are correct–
Michael: They are correct, sir.
Financial Guy: Then you can’t afford to pay him anything.
Michael: Okay. A lame attempt at humor. Swing and a miss.
Financial Guy: Your prices are too low.
Michael: Lowest in town.
Financial Guy: Why do you think Staples and Dunder Mifflin can’t match your prices?
Pam: Corporate greed?
Ryan: Look, our price model is fine. I reviewed the numbers myself. Over time with enough volume, we become profitable.
Financial Guy: Yeah, with a fixed cost pricing model that’s correct.
Ryan: Yeah.
Financial Guy: But you need to use a variable cost pricing model.
Michael: Okay, sure. Right, so– why don’t you explain what that is to– so that they can under– just explain what that is.
Ryan: Explain what you think that is.
Financial Guy: Okay.
Michael: Explain that.
Financial Guy: As you sell more paper and your company grows, so will your costs. For example, delivery man, health care…
Michael: Well, we don’t–
Financial Guy: …business expansion–
Michael: Whatever, yeah.
Financial Guy: At these prices, the more paper you sell, the less money you’ll make.
Michael: Our prices are the only thing keeping us in business.
Financial Guy: They’re actually putting you out of business.
Michael: Okay, okay. Hold on, hold on. Ty, I would like you to crunch those numbers again.
Ty: It’s a program. There’s no such thing–
Michael: Just crunch ’em. Just crunch ’em please.
Ty: [presses key on computer] Crunch.
Pam: Did it help?”

I don’t know too much about the paper supply industry, but I do have 14 years of experience in the food industry and I can tell you that most small food businesses generally aren’t sure exactly how much money they’re making and lose quite a bit of money on inventory and production waste each year.

In fact, according to a study done on Canadian food waste in 2018, the average small food business wastes between 12% and 13% of their produced food each year. If we take a look at the bulk of those businesses, this translates to between $6,000 & $130,000 each year per business that could have gone to growing the business instead of waste.

HOW TO PREVENT IT

To be blunt, food production software works best, it starts at $670 a year, and it’s designed to put thousands of dollar back in your business and drastically reduce food waste. As an example, if you have a food business that has $500,000 a year in revenue, you can typically expect a return of up to $25,000 by taking advantage of food production software for small businesses

Not bad for an investment of under $1000.

A SUGGESTION

No one knows “your business” better than you do, however, as someone who speaks to hundreds of small food business owners over the course of the year I would like to make a suggestion.

I’m often asked “Aaron, do you know where I can find good employees who’ll stay for the long haul?” and “is it worth it to spend on social media marketing?”.

There’s no straight forward answer for the first one, however, I can say with absolute certainty that reinvesting what you save into marketing through Instagram, Facebook, LinkedIn and YouTube will attract both new customers, and new talent.

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