Value-Added Break Even — Know What Day You Start Making Money
Having your hands firmly on the wheel while you’re navigating the s-curves of your favorite mountain roadway can be both thrilling and exhilarating. Those two words though, shouldn’t be the adjectives you use to describe how you run your business. What words do you use?
Having a firm handle on your business is a best practice in any type of organization. Knowing your numbers is an extension of that thought. And knowing what your value-added break even is, and on what day of the month you reach that level, is very important and should be included in your financial dashboard.
A quick refresher on value-added, because I get asked this often. If you sell a product for $1.00 and have 30 cents of paper, materials, click charges, etc., you are left with 70 cents. That 70 cents is value-added. Another example that is often used to define value-added is that it’s the total of your labor costs plus all mark-ups that you have in a project. In the end, the value-added dollars that you accumulate become the currency you have to run the business — everything else is just trading dollars.
Why is keeping tabs on value-added important? Just like what the folks at Holiday Inn say, the best surprise is no surprise. You begin each month with incomplete projects that are in work in process (WIP), and that work has a value-added number attached to it. As you enter new client projects each day, they all have a value-added number to them as well. Each day your financial dashboard should indicate where you stand regarding your anticipated value-added sales scheduled for that month.
If your goal is that your worst month is no less than break even, understanding value-added is important. Knowing where you stand allows you to make better pricing and labor decisions and can possibly take a losing month and turn it to a winner.
You work hard each month to increase the efficiencies of the business through a better work and client mix, upgraded technology and the right people. A good measure of your success is the increased amount of value-added revenue that you have, as well as advancing the date in which you reach your value-added break even.
There are no “just do these three things,” and everything will be OK. Leading a profitable business is a combination of many skills and it is never ending. Have a clear picture of where you want to go, a map of how to get there, and engage your team to make it happen. If you have any comments or thoughts as to how you’ve approached these issues, please send me a note or include them below.
Mike Philie can help validate what’s working and what may need to change in your business. Changing the trajectory of a business is difficult to do while simultaneously operating the core competencies. Mike provides strategy and insight to owners and CEOs in the Graphic Communications Industry by providing direct and realistic advice, not being afraid to voice the unpopular opinion and helping leaders navigate change through a common sense and practical approach. Learn more at www.philiegroup.com, LinkedIn or email at mphilie@philiegroup.com.
Mike Philie leverages his 28 years of direct industry experience in sales, sales management and executive leadership to share what’s working for companies today and how to safely transform your business. Since 2007, he has been providing consulting services to privately held printing and mailing companies across North America.
Mike provides strategy and insight to owners and CEOs in the graphic communications industry by providing direct and realistic assessments, not being afraid to voice the unpopular opinion, and helping leaders navigate change through a common sense and practical approach.
