Sharpen Your Pencil, Do Some Figuring, Make 2009 a Good Year
Two things can contribute significantly to your success; knowing your costs and controlling your wastes. You have both variable and fixed costs. Variable costs are any expenses that increase or decrease sales. Fixed costs or overhead costs are manufacturing costs that cannot be directly traced to a product in a cost-effective way. Typically, the two major variable costs are direct labor and materials. It is extremely important to know your true labor cost. Not the cost of what you pay an employee per hour but rather what they cost you for each productive hour that they work. To determine direct labor true cost you must first (A) compute total employee cost per year which includes payroll taxes and all benefits then, (B) determine hours available to work minus time spent on breaks, clean-up, getting started, etc. (don’t forget to consider vacation and sick leave). True labor cost = A/B. After you compute your true labor cost you can use that to help determine the profitability of various tasks. You may want to break down your analysis into various departments or tasks such as harvesting, fabrication or processing. You must know what parts of your business are profitable and which are not. Without that knowledge you cannot effectively build on your strengths and improve your weaknesses.
You must also maximize utilization of your materials whether it is meats, ingredients, casings or packaging. A significant key to profitability is yield; how many pounds of product you have to sell.