Profit is not what is left at the bottom; you need to plan for it

Profit is not what is left at the bottom; you need to plan for it

At SKUFood we have the privilege of working with a lot of food and beverage entrepreneurs. This is great as we see a lot of innovative products and ideas. It is a challenge to be an entrepreneur. Many things are coming at you and in the initial stages of the business, you have to wear a lot of hats.

Food and beverage entrepreneurs are usually very busy and they can be doing a wide range of tasks from production to sales and marketing to distribution. Often, they will have a plan for each of these functions.

Unfortunately, some do not have a plan to deliver a profit. This should be on the list and is perhaps more important than some of the other tasks. Some people believe it is just what’s left after all of the other bills are paid. We believe you need to plan for the profit and make sure it is built into your selling price. You should be rewarded for all of the hard work and the risks you take.

Project the profit you want to make

You should pay yourself for the work you do in your business. This is separate from the profit. Your selling price needs to be able to absorb the salary you are paid for your work in the business. We see entrepreneurs who do not put the right value to their time and effort. Yes the product might sell a bit better because the price is lower but usually these people are frustrated and do not feel they are rewarded for all of the hard work they do.

Do the work up front to build in your salary and the profit you want to make. Profit can be re-invested in the business or put away to allow for paying bills when you are waiting for money or to get through some challenging times.

Discuss with your accountant the level of profit that is appropriate for the age and stage of your business. Obviously you need to be realistic, given the sales you are doing and the price your product will sell for.

Once you determine the level of profit you are trying to deliver make sure it is included in your calculations for mark up or gross margin. Regardless of how you are calculating your selling price make sure profit is factored in.

Push to protect your profit

There are times when you might need to reduce your selling price to take advantage of some sales opportunities. That might have been how I explained it when I worked for a retailer…Another way to put it is lower your price so you can satisfy your customer’s need for in store specials or flyer items. Regardless of how you justify it you will probably need to lower your price at different times in the year.

It is easy to say, ‘we will make less or no profit this week because of the ad’. 

It is better to say, ‘what can we do to protect our profit?’

Is it possible to increase efficiencies with more units per shift or get a better price on inputs because you are buying more? Explore the options and push the people in your business to deliver the same or similar profit when you do have to reduce your selling price. It is not always possible to get it all back but you have to have the mindset I want to get as much back as we can.

Consider your profit target when making decisions

Every food and beverage entrepreneur is forced to make decisions. Which inputs to buy, expensive or more reasonable packaging, enter a new market and the list goes on.

When you are making these decisions there are many factors to consider. The more expensive packaging might be compostable and give you a real edge in the category or be your only path to the shelf. Make sure profit is one consideration when making these decisions. It is not the only consideration, but it needs to be on your list.

One decision we see food and beverage businesses struggling with is the expansion into new markets. Often the excitement of a new listing and the new geography is linked with success. It is true a new listing in a new market can be a good thing and proof your value proposition is working. It is also true selling more units in the stores you are already on the shelf is more profitable than building demand in a new market. The work you have to do that results in units per store per week growing by 10-20% is less expensive than entering a new market and spreading resources even thinner.

Plan for the profit in your business, work to protect it and consider the impact your decisions will have on the bottom line. A great product is awesome, but it is no guarantee of a return on the investment you make to produce it and get it into the market. Profit cannot drive every decision, but it should be on your mind and not just what your accountant figures out at the end of the year.

Peter

SKUFood Recipes for Success Podcast

The response to our SKUFood Recipe for Success podcast has been great. We want to thank everyone who has been with us as a guest. So many interesting conversations about our industry.  

In this episode, we're delighted to sit down with Carly, a culinary innovator on a mission to elevate kitchen experiences through the power of mustard. As she embarked on her journey towards obtaining her Red Seal Certification, Carly discovered the transformative potential of mustard as a culinary secret weapon. With a simple spoonful, she realized how mustard could effortlessly elevate familiar dishes to new heights of flavor and complexity.

Drawing on her expertise as a trained chef, Carly has embarked on an entrepreneurial venture, carving out a niche in the local food market for high-quality mustard. Her creations not only cater to seasoned chefs but also invite enthusiasts of all cooking levels to experiment and explore the culinary magic of mustard. Join us as Carly shares her insights, experiences, and the delicious journey she's undertaken to fill the mustard gap in the food market, inspiring us all to embrace the simple yet profound impact of this versatile ingredient in our kitchens.

Food Day in Canada

One of the realities of working in this industry is people do not value what this industry does. Food is essential to life. More essential than a smart phone or a trip south in March. Unfortunately, people seem to want all things food for less or they complain about how much it does cost or the companies who deliver it to them.

We do understand food is a big part of people’s disposable income, but we also believe it should be celebrated more. We should put more value on what is done and celebrate the great products that are produced and available.