Someone once asked me how to know if a business had grown too big for the owner to manage.
I think the answer is, if you can’t get your business to generate consistently good results, or if you have management problems in your business that you don’t know how to resolve, the business may be outgrowing your ability to manage it. Additional symptoms of this are:
- You are constantly in fire-fighting mode – you can’t focus on fixing one thing because 3 others are screaming for your attention
- You can’t predict the performance of your business with any degree of confidence – installs don’t happen on time, callbacks are getting worse, labor turnover is too high
- Your team doesn’t work together – sales doesn’t care if they cause problems for template and fab; fab doesn’t worry about doing their best because the installers can clean it up
- Profit is good one month and terrible the next and you don’t know why – and if you do know why, you don’t know how to fix it
One key to managing your business well is understanding the true capacity of your shop. When I ask shop owners what the capacity of their shop is, the typical answer is something like “we average 300 square feet per day” or “we install 10 kitchens a week”. The problem with this is a 75 square foot kitchen in sintered stone with a raised bar top takes much longer to produce than a 75 square foot kitchen in quartz with an eased edge and no raised bar top. I can hear all the “but we charge extra for that” comments. The question is: Do you really understand the impact on your capacity? Do you charge enough to compensate for that impact? How do you know?
It is critical to the health of your business that your pricing accurately reflects the impact of various kitchen configurations on the capacity of your shop.
The best way to do this is to conduct a detailed and thorough financial analysis that includes time studies on each production step and quantifies the differences between the two scenarios mentioned above – accounting for the impacts of the different edge treatments, the number of seams, and all the other variables that occur. While larger shops may have someone on staff with this capability, the typical fab shop doesn’t.
That’s a big problem because this analysis is critical for a smaller shop. Because a shift in consumer tastes away from quartz with eased edges to sintered stone with raised bar tops happens gradually, it can start to quietly but significantly eat away at profit. I’ve talked to shop owners who wake up one morning and suddenly realize they aren’t making any money – and can’t explain why. So, it is critical to stay on top of these market trends and to understand their financial impacts on your shop.
If you don’t have someone in your business who can conduct the above analysis, here’s a simple exercise that can help: Pretend your shop only makes kitchens from sintered stone with raised bar tops.
- Determine how many of these kitchens your shop can reasonably template, fabricate, and install in a day or in a week. Multiply this number to get a monthly total.
- Determine what you typically sell this job for and multiply that number by your monthly total from above. This will give you total sales revenue for the month.
- Compare the revenue number to your typical expenses for the month. This will give you a profit (or loss) number for the month.
- Conduct the same exercise assuming you only made kitchens from quartz with eased edges and no raised bar tops. What does the profit number look like?
- Compare the profit numbers from the two scenarios to determine if your pricing for the sintered stone job is where it should be or not.
Obviously, you would never sell only kitchens with raised bar tops or only use just one material. Conducting this analysis helps you financially quantify the impact of these differences on the capacity of your shop and gives you a reality check on your pricing structure.
Unfortunately, the outcome of this analysis frequently isn’t pretty.
What happens if you discover that the sintered stone kitchen with a raised bar top is greatly underpriced? What do you do with your pricing?
The simple answer is you could raise your price accordingly. sintered stone jobs with raised bar tops now sell for 30% more than they did yesterday. Problem solved, right? As we know, business decisions like this are rarely that simple.
The decision to adjust your pricing must take many factors into consideration.
- How does this change impact the small group of contractors that you really like doing business with? If you run them off with this change, do you lose a lot of other business that is really profitable?
- Are there things you can improve operationally to reduce the impact of these different kitchen configurations?
- Maybe the sintered stone jobs come primarily from a group of K&B dealers that you have always struggled to serve profitably. Maybe increasing pricing on the sintered stone type kitchen might be a way to send them to another fabricator. This could free you up to expand another market segment that is more profitable.
Obviously, it is important to understand the production capacity of your shop. It’s even more important to be able to financially quantify the impact of different kitchen configurations on your business. Knowing this allows you to truly understand the capacity of your business to generate profit.
To say that the world is changing quickly these days is a gross understatement. Sometimes you are afraid to blink because you will miss the next change. This makes running a fab shop today so much more challenging than ever. In this environment, it can be tough to even imagine making any substantive change to your business because it can seem so tough to just keep up.
However, implementing the recommendations available in these pages gives you the ability to improve how you run your business. These recommendations give you ways to control the factors that you can control. Doing this well frees up time and energy to deal with the things we can’t control like Covid, supply chain, energy prices, etc. How well you do this reveals if your business grown too large for you to handle or not.
If you are struggling with implementing lasting change in your business and you aren’t sure where to start, call me for a free custom assessment. I’ll help you get started by identifying some specific items you can tackle today.
You deserve to have a business that not only makes you money but also allows you time to enjoy it. Contact me at Ed@FabricatorsCoach.com or call 864-328-6231
[This article was published in the May 2022 Issue of the Slippery Rock Gazette, find it at: https://www.slipperyrockgazette.net/index.cfm/pageId/4586/How%20Much%20Work%20Can%20My%20Shop%20Handle%3F/ ]