Added Value Should Mean Added Profitablity

Adding value is the process of changing or transforming a product from its original state to a more valuable state; from one set of characteristics to other characteristics that are more preferred in the marketplace.

Today, the “produce-then-sell” mentality of the commodity business is being replaced by the strategy of first determining what attributes consumers want in their products and then creating or manufacturing products with those qualities. Market forces have led to greater opportunities for product differentiation and added value because of:

  • Increased consumer demand regarding health, nutrition and convenience;
  • Efforts to improve productivity; and
  • Technological advances that enable production of what consumers desire.

Adding value to products can be accomplished in a number of ways, but generally falls into two categories: innovation and coordination. One or both of these must do more than add value. To be sustainable, they must also increase profitability.

Innovation

Innovation focuses on improving existing processes, procedures, products and services or creating new ones.

Impact on profitability – sales revenue is a function of volume and price. Value-added products allow more emphasis to be placed on the price part of the equation, initially, but ultimately they will also impact the volume, thereby increasing sales revenue. Your company’s strategy should be to find sources of revenue where you can have both high volumes and good prices.

The relatively new HEAT product is a great example of value-added innovation. By adding Xtract 7065, garlic and Amaferm® we have a summer mineral that adds value by:

  • Lowering heat stress so animals eat instead of standing in the shade or the ponds
  • Repelling insects
  • Increasing digestibility so food consumed is utilized more efficiently offsetting the negative impacts of fescue in certain areas of the country

The product is priced such that we have the profitability part of the
equation covered. In its first year, 26 tons of product was sold.
However, the added value that this product provides has impacted the volume part of the revenue equation as well; sales grew to 455 tons in 2015, and to 1,202 tons as of June 30, 2016. This value-added product has accomplished the strategy of finding a source of revenue where we can have both high volumes and good pricing for maximized sales revenue.

Coordination

Coordination focuses on arrangements among those that produce and market products. Horizontal coordination involves pooling or consolidation among individuals or companies from the same level of the food chain. An example would be hog producers combining their market hogs to make a truckload. A coordinated effort is needed to impact cost reduction.

Impact on profitability – before examining value-added processing and marketing, cost minimization must be achieved. Only efficient businesses will be able to survive and compete. Adding value cannot take the place of reaching the efficiencies attainable through technology and economies of scale.

Our mega dealers are a good example of coordination. They buy large orders and then disseminate the product out in smaller amounts at a significantly lower cost and more efficiency than an LTL company.

No matter innovation or coordination, in the end, value-added is a fairly simple concept. Create relationships with customers to encourage repeat business, improve tactics and your profits will go up.

Identify and Monitor Important Metrics

Dealers must stay on their toes to monitor the ever-changing inventory trends, seasons and customer demands. One way is to proactively optimize your inventory and make sure that you’re stocking the right products, at the right time. To accomplish this, identify and track certain metrics that give you a better understanding of how inventory is moving through the dealership:

A. Inventory Turnover [cost of goods sold / average inventory]

Also known as stock turn, this metric refers to the number of times that product has sold out for a particular time period.

Example: To keep numbers simple, a dealer’s average inventory costs $10,000 and it sold $50,000 worth of goods within a 12-month period. In this case, the dealer’s stock turnover rate is 5.0, which means that it sold out its inventory five times that year.

Monitoring stock turn is a must, since it lets you see how fast merchandise is moving in your business. Generally speaking, a high stock turn rate is good, because it means you’re not tying up too much capital in your inventory.

You can also compute for stock turn at a per product basis so you can figure out how fast different products are selling out. If product A has a turnover rate of 1.0, and product B’s turnover rate is 7.0, then you know that B is selling much more quickly. This serves as an indicator that you’ll need to order more of item B, and less of item A.

B. Gross Margin ROI [gross margin / average inventory cost]

The GMROI measures your return on the amount you invested in stock. It basically answers questions like, “How many gross margin dollars did I make from my inventory investment?” or “For every dollar invested in inventory, how many dollars did I get back?”

Example: A dealer’s average inventory cost is $25,000 and has gross margin of $60,000. The GMROI would be 2.4. In other words, the retailer earns $2.40 for each dollar spent on inventory.

When computed at a store-wide level, GMROI can give you insight on the overall health of your dealership. This metric can also be calculated at a per-product basis so you can determine whether it’s worthwhile to carry certain products.

Say you recently started selling a product in your store. You run the GMROI on it (by taking its gross profit then dividing it by your average inventory at cost) and find that the result isn’t as great as you’d like. You can then use this data to decide on what to do with the product (i.e. take it off the floor, put it on sale, etc.).

C. Sell-Through Percentage [units sold / (units on hand + units sold) x 100]

The sell-through percentage pertains to the number of units sold versus the number of units you had at the beginning. It’s a metric used to assess product performance. It illustrates how fast merchandise is moving and how many more units you have to sell to unload your inventory.

Example: A dealer received 200 units of Vita Charge® Liquid Boost®, and proceeds to sell 145 after a month. That item’s sell-through percentage is 73 percent. Sell-through gives you an idea of which products are selling and will allow you to make better decisions when it comes to what to stock up on, what to put on sale, etc.

Tip: Check to see if your point-of-sale or inventory system provides these metrics for you. Before pulling out your calculator to compute for these metrics, see if you can find the insights you need using your inventory or POS software. Some systems can generate reports on popular products as well as your margins, so you won’t have to do math yourself.

Alternatively, you can download Retail Calculators, an app that has several preset calculators in one program, allowing you to compute for common business metrics without having to memorize any of the formulas.

Measuring Return from Sponsorship Opportunities

BioZyme® began its youth investment strategy in 2007. That year, we sponsored two Junior National beef shows – Angus and Hereford. Today, we sponsor 13 – World Pork Expo, Hereford, Angus, Simmental, Shorthorn, Gelbvieh, Red Angus, Maine and Chi, Saler, Charolais, Limousin, Mini Hereford, and Brahman. The reason we choose to make this investment is simple. Youth are the future. The next question that always gets asked is how does this investment provide return.

In the ag world, it is common to get calls from the locals – FFA, 4-H, local cattleman’s association – asking for sponsorships or for you to be a volunteer. Association trade shows and exhibitions also turn to sponsors to get their program off the ground. In most cases, these organizations will ask for a modest amount ranging from a few hundred to a few thousand dollars in exchange for some type of advertising, like logos or banners.

Deciding what to sponsor can be tricky, as certain opportunities may be a complete waste of money, while others may pay off in gold (i.e. marketing your company to potential customers). In addition, sponsoring an event for someone who already sings praises about your dealership enhances that relationship, and because you are helping him or her meet a goal, they sing even louder.

Obviously making sure these choices are a good investment of your time and money is important to your checkbook. Whether you’re being recruited to provide time or money, ask yourself the following questions before deciding to invest:

  • What is the target market for this event?
  • What kind of exposure do I get for my investment?
  • Can I get this kind of exposure without this investment?
  • Do I get direct access to the audience?
  • Does it make sense for me to be there?
  • Which business goal does it help me complete?
  • Are other sponsors my competitors?
  • How does this enhance my credibility with who/what I’m helping?
  • Why wouldn’t I do it?

After you decide to invest, don’t forget to assess the results. Some metrics you should consider analyzing include: sales activity, lead generation, lower customer acquisition cost and/or attitudes toward your brand or business. BioZyme looks to Sure Champ® sales as our metric to measure success. The below graph shows the investment is paying off in more than just goodwill.

At the end of the day, the key to managing sponsorships is ensuring you get the “best bang for your buck”, while minimizing risk to your brand or business. I am sure the sponsors of the 2012 ING NYC Marathon did their due diligence. Unfortunately, they could have never predicted an event the magnitude of Hurricane Sandy. City officials, sponsors, as well as race organizers were divided on whether or not to proceed. It was a difficult decision to cancel, but the right decision. So, whether you are a title sponsor for a major event, like ING, or a smaller sponsor at a local event, setting your objectives, ensuring you have the right sponsorship partner, leveraging the association beyond just a sign, will yield better business in the long run.

4 Myths to Debunk about Pricing

Pricing tends to be looked at as this ominous figure in business that’s so difficult that most are left paralyzed. As one of the least studied branches of marketing, pricing has become a black box for many dealers, who simply adopt existing prejudices and misinformation.

Put simply: if pricing is a black box, you’re losing money. A lot of it.

Therefore, let’s dispel some of the most common myths so you can be catapulted into action and start capturing all of that lost cash you’re leaving on the table. Increased revenue makes every business owner happy.

Myth #1:
We need to accept market or competitor pricing

Basic microeconomics teaches that in perfect competition, individual companies cannot affect market prices. In other words, businesses must accept the equilibrium price, where the demand curve crosses the supply curve. While this is a convenient way to calculate price, this theory doesn’t correctly reflect how the real market works. Prices in any market span across a range, rather than fixing on only one point. Product and service differentiation through brand, quality, etc. can all affect where your business lies on this range.

TRUTH: No matter the density of your industry, product and brand differentiation can take you well above the market standard.

Myth #2:
The only way to increase volume of sales is by decreasing price

It may sound too good to be true, but it is indeed possible to raise prices and increase volume at the same time. As Lisa states in her letter this month, price isn’t the only factor that attracts customers. Focusing on giving customers a reason to pay a higher price for your product or service is crucial, whether that be greater quality or better service. A powerful tool is market segmentation. Most products have a target audience, whether it’s the progressive cattleman, the bargain hunter, the show segment or the hobby horseman. Creating different classes for your product depending on quality or services can expand the number of customers you cater to, thus increasing buyers. Additionally, sometimes lowering your price can actually deter people from buying your product. Think about it. If I came up to you and said I’d sell you an Apple MacBook Air for $100, you wouldn’t buy it, because you’d definitely question the quality.

TRUTH: Volume is created by customer segmentation, charging different sets of customers different prices, and thus increasing volume and revenue.

Myth #3: 
We need to charge lower than everyone else

This is quite possibly the biggest misconception. A race to the bottom is one of the worst ways to compete, because you end up underpricing and losing out on your customer base. Your customers begin to question the quality of your product, but needs to buy the product. So they continue to shop around, and you lose customers. Lower prices equal lower revenue rates, which means the number of sales must increase to cover the loss. Obvious, yes, but it needed to be stated. Additionally, a lower price tag doesn’t mean customers will automatically flock toward your product. For example, if BMW suddenly sold its cars for $35,000 instead of whatever ridiculous dollar amount they’re priced at now, would that necessarily increase its revenues? Possibly in the short term, but in the long term they would begin to compete with cars made by Honda and Toyota who already have that market cornered. BMW would also lose out on the consumers that put luxury value in the premium pricing of their cars.

TRUTH: Underpricing is rarely the solution to any pricing woes. You end up dropping into a different segment of customers and lose out on cash from your current customers.

Myth #4:
Pricing isn’t important

Pricing is the most important aspect of your business. Period.
A 1 percent improvement in pricing results in an average increase of 11.1 percent in operating profit. No other business lever has that impact – not cost optimization, volume increases, or anything.


TRUTH:
Pricing is, bar none, the lever in your business that has the highest impact on the most important cell on your end-of-month spreadsheet – your revenue. You need to take it seriously.

Source: http://www.priceintelligently.com

Financial and Productivity Apps to Keep You in Check

Your iPhone can be a powerful tool for business – or a complete distraction. The key to any software program or app is finding the right match for your specific needs or deficiencies and then committing to using the tool so you can take advantage of the benefits. The following are a few apps that may be able to enhance record keeping systems, automatically sync income or expense data with your financial software, increase communication and transparency with your team and boost productivity.

Xpense Tracker
An all-inclusive expense tracking and reporting application for dealers wishing to track their expenses and mileage. It’s power does not end at the iPhone but extends to the desktop by allowing emailing or exporting of the expense files and accompanying photo receipts directly to the desktop.

  • Quickly snap shots of receipts for easy scans and financial tracking.
  • Track your mileage in real time by using your device’s integrated GPS.
  • Export your records in .PDF and .CSV file formats.

Hours Tracker
Need a way to track your time or an effective tool for employees to use so they can send you time reports? Clock in and out as you work. Or, add entries yourself in just a few quick taps. Time entries are automatically created when you clock out.

Easily review your past entries, grouped by day, week, month or pay period. You can easily export your data by job, date or selection. Choose to export as a text summary or in spreadsheet-ready CSV format.

SLACK
All your team communication in one place. Slack is a new way to get more done, spend less time in meetings and reduce email.

  • Real-time messaging and file sharing for one-to-one and group conversations.
  • Powerful search and archiving, so you can find information easily.
  • Instantly syncs across all devices.
  • Configurable notifications for desktop, mobile, and email.
  • Proven to make your working life simpler, more pleasant, and more productive.

Quickbooks Payment Pro
GET PAID QUICKLY … ANYWHERE, ANYTIME. Plug the card reader into your iPhone or iPad and swipe credit cards quickly and securely. Or, if you don’t have a card reader, you can always scan a card with your camera or key in the card details directly.

Your customer signs right on your device to authorize the payment. Then, you can email or text a receipt to your customer. Accepting a payment takes just a few taps from start to finish.

Wunderlist
Wunderlist allows dealers to access their to-do lists from almost anywhere. Star important tasks, create multiple lists, sort by due date and priority and add tasks via e-mail.

Since multiple parties can edit lists, the app doubles up as a collaboration tool that works across desktop and mobile.

Freedom – Reduce Distractions
With so many distractions and possibilities in your digital life, it’s easy to get scattered. Freedom blocks digital distractions so you can be more productive. Start a Freedom session, and you’re blocked from all distractions on your phone or tablet. Freedom gives you peace and quiet, so you can accomplish more.
Rescue Time: Android alternative

Passion is the Only Way to Reach Peak Performance

Which of the following types of people would you prefer to have in greater numbers working with your business?

A. Happy, Low Performers
B. Unhappy, Low Performers
C. Unhappy, High Performers
D. Happy, High Performers
E. All of the above.

The obvious preference would be “D.” Makes sense as mounting evidence suggests that happy, high-performing workforces correlate with greater employee satisfaction, customer loyalty, profits and productivity.

One of my favorite books is All In by Adrian Gostick and Chester Elton. It says productivity is driven by the equation E+E+E. The Es stand for engaged, enabled and energized. Engaged means the employee is attached to the company and willing to put forth extra effort. Enabled means that the company environment supports the employee’s productivity and performance. Energized means that the employee feels a sense of well-being and drive.

Yale psychologist, Amy Wrzesniewski, interviewed hundreds of workers in all professions and found that people have one of three work “orientations” or mindsets:

  1. They see work as being a “job” or a chore and use the paycheck
    as its reward.
  2. They approach work as a “career” and strive to advance and succeed.
  3. They see their work as a “calling” and find work fulfilling because it gives them feelings of meaning and purpose.

Wrzesniewski then showed that people with a calling will work harder and longer simply because their jobs are rewarding.

After reading all of this, the conclusion is simple: we need happy, rewarded, engaged, enabled and energized workers if we want them to be the high-performing type that result in greater productivity and profits for our businesses.

But wait. According to Deloitte University Press, up to 87.7 percent of America’s workforce is not able to contribute to their full potential because they don’t have passion for their work. Less than 12.3 percent of America’s workforce possesses the attributes of worker passion. This “passion gap” is important because passionate workers are committed to continually achieving higher levels of performance.

So passion truly matters, and here are three ways to find and support it in your team:

1) Look for where your preconceived notions about the profile of a passionate worker are stopping you from identifying talent both externally and internally. Passionate workers come from all age groups, educational levels and backgrounds.

2) Recognize that passionate workers out earn and outperform their peers because of their internal drive for sustained learning and performance improvement. Take risks to cultivate these dispositions, and passionate workers will take risks for you in return.

3) Cultivation of passionate workers internally is probably the most effective way to increase the proportion of passionate workers in your organization. Organizations should evaluate their work environments to understand where they cultivate or discourage passion.

Accounting Software Increases Awareness & Efficiency

Accounting is the language of business. Not having accurate accounting information is like trying to get on the right train in Tokyo when you don’t speak Japanese. In the end, you will be lost and unsure of your business’ financial footprint.

Whether you’re just opening up shop or you own a thriving business, accounting software can make your life easier and save you hundreds of hours of time and stress. The best accounting software can perform most accounting tasks, such as keeping track of expenses and daily transactions, paying bills and employees, sending recurring invoices and syncing data across financial accounts. There’s no substitute for an accounting pro who knows the ins and outs of tax law, but today’s packages can help you with everything from routine bookkeeping to payroll, taxes, and planning.

When Business News Daily asked small business owners what made the “perfect” accounting software, there was one resounding requirement across the board. The best accounting software saves business owners time and doesn’t add to the already stressful nature of owning a small business.

The good news is there are more accounting software options than ever, including subscription Web-based options that don’t require their users to install or update software. Many businesses, however, including those that need to track large inventories or client databases, and those that prefer not to entrust their data to the cloud, may be happier with a desktop tool. Below are four of today’s favorite options among small business owners:

  1. Wave is a free, easy-to-use program that also has some surprisingly strong accounting and invoicing tools.
  2. Gusto ($29 per month) is inexpensive, has a simple and attractive interface, and incorporates the payroll tools most often required by small businesses.
  3. FreshBooks (from $19.95 per month) is exceedingly friendly, understandable, and attractive. FreshBooks is the site to beat when it comes to managing and tracking invoices, time and expenses for the very small business.
  4. QuickBooks Online ($39.95 per month) is a cloud-based accounting application that includes the most comprehensive set of features for small business. It’s easy to use, aesthetically pleasing, and has numerous integrated add-ons. QuickBooks can also be purchased as a desktop install.

Purchasing the right accounting software and then using it is one of the most important ways to know the financial state of your business. However, if you don’t take the time to extract information from the software, analyze that information and then use it to make decisions, the software is just another wasted purchase. Without knowing how your company has performed financially, it is impossible to predict where it can go. In addition to reviewing the monthly financial statements (profit and loss and balance sheet), consider adding these four items to your think time:

1. The Quick Ratio (> 1)
By definition, the quick ratio is found on a company’s balance sheet and is the business’ current assets (cash and accounts receivables) divided by its current liabilities. A favorite metric of every bank when considering a loan, the quick ratio is a measure of the financial stability of a business. It shows that the company has more cash available than the short-term money it owes. In most industries, a healthy quick ratio should be greater than 1.

2. Top 10 Customers
While all customers are important, not all of them are created equal. Who are the 10 most important customers that contribute to the success of your company? This is measured not only by revenue, but also the additional products they buy. In many companies, these top customers contribute 70 to 80 percent of the total revenue. Remember, it is typically easier to sell more to these established customers than find new ones.

3. Days Sales Outstanding (< 133%)
Days sales outstanding (DSO) is the average number of days it takes for customers to pay. The smaller the number, the better, since the business can use that cash more quickly. The number should be less than 133% of the payment terms with a customer. For example, if terms are 30 days, the DSO should be 40 or less. DSO can be improved by giving out less customer credit or collecting payments more quickly.

4. Operating Cash Flow (> $1)
How much positive operating cash flow did the business produce last month? Profit is important, but cash flow is king. By definition, cash flow is simply the sum of your monthly profit and any changes in accounts payable, accounts receivable and inventory. The higher this number is, the healthier the company is.

Striving to make smarter and more profitable decisions is the basis of financial success. Having an accounting system and using it to make those decisions is a great start.