Larry Janeksy built a $100 million business from nothing. When he speaks, I pay attention. He challenges small business owners to think about true costs of people and things. If you don't know this, you could be going bankrupt and not know it.
What people (and things) cost.
Spending a dollar in business costs way more than a dollar.
How much does it cost to pay a person, lets say, $40,000 a year? With labor burden and overhead its likely $60,000.
But wait, how much do we have to sell to pay them that? $60,000 divided by our gross margin on sales of (lets say it was) 40%, equals $150,000.
Using a 40% gross margin, we have to market, sell, and deliver $150,000 of NEW business to pay an additional employee ($769 a week) $40,000 a year. So in this example, for every $1 in payroll our breakeven goes up by $3.75.
Could this be the answer to helping small business owners make more money?
Larry's saying, for every new dollar of expense you incur, the business needs to generate 4X in additional revenues if you want to pay for it through the business (cash flow) and not by taking on more debt.
He also assumes an average 40% gross margin or gross profit on everything you sell. Few small business owners I know generate that.
Four reasons you're working too hard and not making enough money
- Your overall gross margin is lower than 40% so you lose money on every sale
- You're selling products that are not unique with no pricing power
- You're providing a service and not accounting for all the extra time it takes to deliver it (expanding your costs)
- You have clients bleeding you dry. They buy a lot of products or services that don't earn you enough gross margin.
If any of these conditions are true in your business, the more you sell, the more money you'll lose.
We'll help you think through how you can solve these problems and more. Thanks Larry for the inspiration to do it.
I highly recommend reading Larry's book, "The Highest Calling". You can't argue with success!
In your corner as always,