Have you ever seen what you thought was a “booming” business that just didn’t make it? Watching a business thrive from the lobby is only part of the picture. Lines out the door may be an indicator that a lot of money is coming in, but it’s the amount of money that the business owner gets to keep that determines how profitable that small business may be.
The Formula is Simple: Sales – Expenses = Profit
But controlling each level can sometimes be a bit like navigating an obstacle course, dodging the things that will trip you up and staying on your feet to reach the goal.
Sales
Sales are easy. But, getting profitable sales take a little more focus. We’ve all seen the businesses that scream “Sale!” every week or coupon themselves to the point that their products are no longer valued at full price. Sales are generated, but the cost of getting those dollars in the door is too high. In that case, sales minus expenses equals no profit … or worse, in the hole. With our bakeries, we focus on profitable sales of products that are valued by customers who want phenomenal quality, not the “deal of the day.”
Expenses
In the bakery business, there are two major areas of expense we consistently focus on. The big two: labor and ingredient costs. This doesn’t mean we look for the people who will work for the least amount of money or the cheapest ingredients we can find. On the contrary, we look for people who go the extra mile and ingredients that fit our phenomenal product goals. As a result, we have to be extremely efficient with the labor we have.
We teach our bakery owners that you don’t just keep bringing in additional employees to spread the work around and make it easy on yourself. You have to utilize your own skills as well as the team to the best of their abilities which means hiring right, training solid, and creating an atmosphere where employees feel appreciated and know they are a huge part of the success of the business.
Ingredient costs are not just about what you pay for them. Ours is a business of fresh products. How much we make or prepare for each day versus what we sell in a day is a critical balancing act. Making the daily predictions so as to not sell out too soon or not throw away too much is a fine balance and a constant challenge. We have systems that help bakeries track and manage the process so there is a combination of math and intuition at work.
Profit
Profit is not about how much money comes in the door. It’s about how much is left over after all the expenses are paid. Certainly, higher sales can lead to higher profits, but only if the expenses for those sales are managed to get the most from every dollar. We collect Profit and Loss statements from our bakeries annually, standardize them for an apples-to-apples comparison, and publish the information for our bakery owners so they know what an average Great Harvest spends on every expense from rent to accounting (and of course, the big two: ingredients and labor). Knowing what is achievable goes a long way towards helping our franchise owners meet their own goals for running a profitable bakery.
Get more information about Bread Business success:
- See The Costs of Opening a Bakery in our Information Packet.
- Read our post How Long Will it Take For My Small Business to Become Profitable?
- Learn about Great Harvest bakery franchise opportunities.
If you have questions about The Bread Business and our bakery franchise opportunities, let us know in the comments, or contact us directly.
