Category Archives: Ask an Expert

Questions & Answers from clients and across social media

Suppy & Demand’s role in Strategic Planning

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A question was submitted to address-

“…how to assess and compensate for Supply & Demand in a small business?”

Supply and Demand is one of the necessary factors a business needs to aggressively monitor due to its direct correlation to the businesses ability to generate revenue.  Supply & Demand is one of the 5 key components we look at when assessing the “Products Pillar” of any business.   While  the Laws of Supply & Demand would be considered economics and financial planning(most of which I place under the Operations Pillar), most of the control an organization has over it aligns with its products designs and features.

For example creating that “uniqueness” in your product line is one tactic you can Strategically Plan to increase the Demand for your product.

First some background – This question originated from a M.O.R.E Assessement ©  Our firm refers to the “4 Pillars of M.O.R.E.©” (Products, People, Operations, & Marketing) that all businesses need to generate revenue.  Depending on the scale or scope of your business and industry the method to assess each of these can range widely, but the importance of each of these Pillars is a constant.  When they work together, you generate more revenue.   So, assessing and developing each of the “Pillars” is vital  to develop your businesses ability to create revenue, so these 4 areas are always our starting point for assessments.LearnMore-Blue-Primary-16

 

Assessing Supply & Demand for your Product

Many businesses utilize purchased Business Plan tools (templates, software) or SWOT/PEST analysis methods when determining existing competition and direction, which is an important part of assessing Supply & Demand.  While these are good tools, they can become easily biased by whomever is completing them.  I have read many SWOT analysis that simply don’t represent Threats or Opportunities with in a company well.  Thus if a SWOT is the only format used, it can lead to poor or unwise strategy and false outcomes.  I always recommend more than one set of eyes create/debate outcomes when using this type of assessment.  I DO think they are valuable tools and our firm uses them, but in conjunction with other tools.

The process we tend to use frequently is referred to as a “Market Study”.  A Market Study is an in-depth, qualitative analysis process which employs many tactics.  Each “Study” is a relatively custom designed because every organization or brand is unique.  Brand development differs in every organization based on resources, skills and leadership. When performing a Market Study, the process is gathering information from key representatives of every key constituency possible that may create, utilize or experience that business product.  Perceptions are confirmed about the product/companies current and former character and user, and enough data is gathered to support future direction. Using an organizations vision and mission needs to be a focal point.  A Market Study provides holistic data (internal & external) to help answer: What niche(s) could the organization occupy and what is distinctive about its positioning?  Where as a SWOT is merely a component of a Market Study that is generally produced internally.  While there may be overlap, it is not as thorough.

Surveys are used in most Market Study’s and are an excellent way to collect data on a variety of topics and also works well for supply and demand studies.  A properly designed survey has the demographic data, customer preferences, and motivators data needed to help position your products correctly.  C.S.Simons Consulting performed a Survey in 2015 to determine why people hire a consultant, which significantly improved how and who we speak to.  Click on the Survey link to take our brief Survey!

Benchmarking is also a recommended step in a Market Study and involves competitive data and interviews to discover strategies or missed opportunities of similar businesses. Properly designed conversations will provide significant information you can use for Supply & Demand assessment.   Generally both companies gain from the experience and can also lead to improvements in Cost Containment & Labor Optimization.

Territory is another key consideration when determining Supply & Demand.  What is the radius for your product appeal ? (assuming a physical address).  This changes radically by product or service and by industry, but the key is to understand buyers preferences and motivators as it relates to what you sell.  How far will they go to find us?  While it sounds obvious or easy, it may not be.  The second part of that consideration is how many like “you” are there within this radius?  Competition is good to an extent, but how do you determine over-saturation?

Quick example;

Many people want Bankers, Lawyers, or Accountants close to where they are located but won’t think twice about traveling for a specialty doctor or upscale retailer.  Determining if you are a basic service or destination service in the mind of your customer is key to knowing the radius they will travel to give you their money.  Of course, the farther they travel the higher the expectations and the more you risk if they are unsatisfied.  But, most will easily justify spending more if you are a destination than if you are basic.  (Law of Supply)

How to compensate /correct for Supply & Demand deficiencies?

If you don’t have….

Location, Location, Location,

you need

Marketing, Execution, and Follow up

Marketing – Customers need to know  either 1) your name or where you are  AND 2) why they want/need you.  Tactics and Campaigns will come and go, but to maintain customer Supply & Demand, Marketing professionals may be your best bet.

Execution –  What ever the Marketers are saying you “do” or “sell”, you better make sure the people your customers encounter in your business or products they buy from you,… do it.  If you say you have great customer service, you need to make sure they encounter Excellent service, if your marketing says your product will help them loose weight or look sexier, it better or else it will effect your Demand.

Follow up – No matter what you sell, if you have customers, you should ask how they liked the product.  The number one thing you need to do once they have purchased something, is to get them (or their referrals) to come back and buy more!  I recognize this can be more difficult depending on what you sell, but the fact remains that you need feedback to help determine if you are executing what your Marketing says you are.  No feedback or not even asking for feedback can be very dangerous.

  • Ever go to a local restaurant where the food was so-so(or worse) and no one ever came back to ask “how is everything?”.  You leave less than impressed. Has your likely hood of recommending or returning gone down?  Maybe. But what if you traveled an hour to go to this restaurant you “heard about” and had the same experience.

What is your likely hood of going out of your way next time to return? 

There goes your Demand

 

Key times to RE-ASSESS your Supply & Demand

It’s important to note that Supply & Demand is just one of the 5 key factors our company looks at to assess the Product Pillar for revenue generation and therefore not the only consideration when assessing your products design and strategy.  Reviewing the Supply and Demand for your organization/product can be done at any point of the business life-cycle.

Key times to do this are:

  • At Start Up
  • Any time your business encounters a major change like new leadership
  • When planning Expansion/Relocation projects
  • Opening new locations – know WHY they find you, don’t assume they will
  • Considering new technology implementation
  • Creating a Strategic Growth Plan
  •  If it has been more than a few since you looked at this you may want to because of the rate of speed technology changes.

Internet Marketing is radically different than it was 3 years ago, thus HOW people are finding you IS different.  The internet has shifted buyers motivations in many industries, how has it effected yours? I always have a plan in my back pocket for a sudden change in sales (+/-) and I have many systems in place to tell me where or why people are finding me.  This data is reviewed periodically and is the basis for changes in Business Strategy.  I highly recommend this be given some thought by owners and operators.  I don’t have to tell you how quickly things change and your customers needs and loyalties are changing just as quickly.

This is only the tip of the iceberg on this subject and how to use the information for product development  and building your business.  Feel free to contact me if you would like to discuss this further or if I can help guide you to some Marketing professionals I work with to help.
LearnMore-Green-Primary-16

 

Carpe diem!

Why Businesses Fail? – Avoiding common statistics

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From our “Ask an Expert” blog – John L. asks –
“You mentioned in your recent article (Why Marketing alone can’t save your business) that a business should focus more attention on fixing common reasons businesses fail before addressing Marketing. What are those issues you are referring to?”

Thank you for the question and reading our blog.  In that article we made the point of when people are searching for a Consultant, the current Google trend is to search for one that will get more business in the door opposed to how to fix a failing business.  My interviews with many Small business leaders shows that many owners may feel Top line revenue is the only thing needed to fix an ailing business, when in fact there is often much more to it than that.  Our concern is that people don’t always know what signs to look for or how to judge the strength of their businesses ability to generate revenue other than looking at a Marketing fix.

So what are the top reasons a business fails?  Our company has researched many different sources to find 2 common reasons.  I have presented this concept to MANY Business Bankers, Accounting groups, Accellerators and Chambers, who ALL agree with our approach.

The Top 2 reasons Business FAIL are:

  1.  Lack of Education – Business Acumen & Experience
  2.  Lack of Timely or Appropriate Funding
 Business Acumen is a combination of a variety of skills, experience, decision making and planning ability.  Many people have a specific expertise which may be enough to start a business, but other skills are needed to build a successful business and this creates a skills gap.  Not gaining or hiring for those skills can leave a gap in Business operations, which over time devalues a business.
Appropriate funding refers to funding at different phases of business growth.  Start up funds, seeking capital growth funds or credit line at appropriate times, and managing Revenue capabilities (or cost controls) that maintain budgeted margins.

Some common statistics –

50% of Small Business fail the First year

65% of Small Business fails within 3 years

~80% of Small Business fails with in 5 years

of those

 

80% of Start ups fail due to lack of Management Knowledge and skills

* SBA,D&B,US Census, Inc Magazine

 

92% of Small Business fails due to poor

Management Acumen

                    * Dunn & Bradstreet

Failure is 2X more likely due to Quality of Management than due to External Factors

                                                          *National Bankruptcy Annual Reports

90% of FAILED Business is due to lack of Quality Management.

of these:

48% classified as incompetence

42% classified as inexperienced

                                                                        *IMC (International Management Consultants)

These are pretty sobering statistics and speak to the point my business continually addresses which is;  there are multiple areas to build upon to strengthen and grow a business.  There is a growing need for people capable of Holistically Assessing and Planning.  Where does a business person start when they want to look at their own business you ask?  Start with these common traits we have found that support the 2 Most common reasons listed above.

Reasons a New Business FAILS

  • Lack of understanding the effort needed
  • Inadequate financing
  • Lack of planning
  • Unrealistic expectations of success & salary
  • Inability to commit
  • Unwillingness to take responsibility

A key problem for Start Up Business is that they don’t know what they don’t know.  Seeking the advice of people that can both Mentor & Lead them and their plan development helps significantly .

 

Reasons Existing Business FAILS

  • Poor cash flow management
  • Seek funding too late
  • Absence of Performance Monitoring
  • Lack of target Audience research
  • Poor inventory management
  • Failure to identify your own Strengths Weaknesses (SWOT)
  • Insufficient professional resources

Anyone who has run an Organization (Profit or Non Profit) knows how many hats you have to wear.  There are so many obstacles that come up, you become seasoned in researching and solving your own problems.  The difference between a Pass or FAIL here we have found is often a combination of 3 things.

  1. Over confidence in your own assessment capabilities
  2. Misinformation
  3. Closed mindedness

 

In post mortem interviews with owners or Executive Directors, a common response is “I should have this, or I should have that”.  Retrospection shows the same 3 conclusions listed above.  There are many other complicating issues and each case is unique, but if you are in a position where you need to do something (and quickly) to “turn things around”,  I suggest looking (in addition to Marketing) at these issues to insure you can make the most of your revenue.

Last thought – If you are just looking to increase your profit line by a few points, improving internal efficiency can add as much to your profit line as adding to your Top line revenue.

To learn more about our unique Assessment and Efficiency Services  ContactUs-Gray-Primary-16

Carpe diem!

 

 

Choosing the right Strategy Consultant

Ask an Expert, Operations,

From our “Ask an Expert” series-

John asks;

“In your speech you spoke of the importance of Strategic Planning for businesses of all sizes, what should I look for in a Consultant to help with our Strategic Planning?”

Thanks for the question John,

Businesses of all scale need business strategy that focuses on growth or improvements.  Many businesses realize that periodically bringing in a Consultant to help solve a nagging problem or achieve their next milestone is a cost effective way for improvement.  One problem is that a “Strategy Consultant” comes in many forms and choosing the one that “fits” best for your organization can be daunting. 

Some take complete leadership roles and others facilitate your team through the process.  Depending on your business structure some may want a lot of time to become ingrained before determining a path, others may run most of the project by conference calls or group facilitation.  There really is no “Right way” and there are many variables.  To complicate this further, no two businesses are the same so it is hard to look at a Consultants client list as a means to determine their qualifications.  I always recommend looking at their Successes. How far have they taken their clients? Ask references if they added value and clarity to the process?  Did they achieve what they were hired to do for each client?  Did they exceed expectations?   If so, Where & How?

Its about the results!

Before you begin your search keep in mind that Strategic Planning is a process and not a project.  It is not a one and done task.  To begin there is a process that most consultants will follow to insure the appropriate information is gathered and considered (see below).  Then after the initial plan is written and launched the process continues.  This is where many teams fail.  I have seen senior management complete a plan and hand it off to a manager (to implement) to then not look at it again for a year.  How to manage the “Change” is often left out in the planning stage.

Using metrics to make adjustments is often JUST as important as the original plan is.

 

So to answer the question – “..the most important thing to look for..” is a combination of….
  1. someone who understands this process from start to finish
  2. has the capability to get you to stick to it (more on that below)

 

As mentioned, here is a quick look at the general process followed in a Strategic Planning process.

  1. Listens
  2. Investigates
  3. Researches – Benchmarks, Industry, Interviews
  4. Considers your resources
  5. Gap Analysis
  6. Provides support for your chosen direction
  7. Develops an agreeable implementation plan
  8. Follows up – Continued Relationship

The first 4 are to understand your problem, your industry, your people and your obstacles.  The 5th step is both analytical and Strategic, and steps 6 -8 focus on defining and insuring success for your organization.                                                                                    LearnMore-Green-Primary-16

Musts for a Strategy Consultant

What to listen for in their pitch and confirm in reference checks.

  • Acts as Partner  – Goes to lengths to learn the entirety of the problem and solves it the way you would, or in an easily adoptable way for your team.
  • Goal oriented – keeps project and team on track.
  • Project planner – demonstrates the ability to plan, organize & communicate to all involved insuring key timelines & milestones are met.
  • Past successes – history of creating solutions to permanently solve clients problems.  Determines root cause of problem for organization.
  • Multi level understanding – has the ability to see problem from all levels of your organization leading to comprehensive solutions and reduces implementation struggles.

 

Bonuses –

A person with a complimenting style for your team.  A leader who perpetually develops, enables, supports, guides, informs, mentors, comprehensive, and displays patience with your team.  (Ask references)

 

Some common mistakes made
  1. More often than not, Strategy “fails” during the implementation phase, not during the planning stage.  Use a decision funnel to insure each tactic created can be implemented properly or you risk failure.  Execution is key!  Make sure whoever is calling the shots has an understanding of all phases of implementation.
  2. Goals set during Strategy session do not follow the “SMART” methodology, thus, even if implemented correctly, they are either not attainable or pertinent.  In each case, time, energy, and money have been wasted with little to no reward.
  3. Change is not associated with efficiency or market study.  Due diligence is needed.  Perform a SWOT, PEST or industry specific analysis.  Insure Change is tied to improvements and not just profit.
  4. Ad-hoc strategy seldom works.  Vet everything!
  5. Insuring resources are available at all levels or risk frustrating your workforce or customer base.

 

Final thoughts

The ability for this Consultant to influence decision makers through the entire process should be evident.

  • You should feel some respect for the consultant
  • You should feel it someone you need at “your table”
  • You should want to listen to them

 

Hope this helps,

Carpe diem!

 

Business PhotoC.S.Simons Consulting specializes in Management & Business Strategy, offering 25 years of successes for you to benefit from.  Offering a Shared Risk Platform – Results Guaranteed or you won’t be billed!

 

 

P&L’s – The most important number?

Ask an Expert, Operations, , , ,

I received a question about  our recent post regarding Financial tools every business needs regarding the Profit and Loss Statement.

The question is…

” Which is the single most important number to help manage your business on the P&L?”

The answer quite simply is the “% Variances” column.   Not all P&L reports even have that so what is it?  To truly have an idea where your business needs to be, you need to start with creating a budget.  Every line on a P&L should have a “budgeted amount”  number in it.  This is the amount you expected to spend to yield the profit you planned.  If you don’t do the work to create a budget, then the P&L looses half of its value as a tool to help your businesses ability to generate revenue.

Many know that to help manage your business you compare the “Actuals” to the “Budgeted” columns for each line.  But there should also be a percentage column next to each of these showing the percent of total revenue that each is, which isn’t as common to find in smaller businesses P&L.  It is important to do this because Percentages reflect day to day execution of the operations in your business.

The VARIANCE column shows the difference between the budgeted and actual dollars spent, which should also have a % Variance column next to it.  This is an excellent “At a Glance” illustration of how you did in that area for the given period (+/-).

The variance dollar columns are great information for when you need to “dig in” and find why an area was high or low, but comparing that areas “actual” percent to the percent of “budgeted” revenue….

is the single most telling number for performance.

Example:

Sales are up, which would likely mean some controllable expenses are up, right? But how much more should you spend to maintain your margins?  Management needs to make sure expenses are still with in the Budgeted percentage of sales to maintain profit levels as expected.  Simply put if you expected to spend 20% of your expenses on materials, you should still spend 20% on materials whether sales go up or down.  This column helps you keep an eye on that and make adjustments if necessary.   Businesses that have a lot of fluctuation tend to run these reports more often (Food, Retail, etc).  This helps you control your product costs.  Granted, this may also mean that profit dollars are down (assuming revenue is down), but at least you maintain product and fiscal integrity.  That is very important which I have a lot to say about as well as how to impact these numbers, but I will save that for another time.

But the SINGLE most important number, one that a Business Analyst or Owner should focus on first is the % Variance to budgeted because it shows so much information.

Call me if you need help with this, my number is at the bottom of our Contact page.

Carpe diem!

Ask an Expert – Creating a “Hiring model”

Ask an Expert, Conversations with a Consultant, Operations, People, , , ,

Stephanie asked-

“I need to hire for a new retail venture in 2016.  When I heard you speak, you referred to a “Model” to use when recruiting.  Where can I find those?”

The “model” needs to be created by you specifically for a position or department.  It is a fairly easy process to develop and one that will pay off in the long run.  It helps build a sustainable workforce well suited to help generate revenue.    A hiring model captures the key strengths and attitudes (skills, personality, work experience and even core values) of an ideal candidate for a particular position.  Stephanie you need to literally make a list ahead of time of what will be needed by a candidate to succeed at this job in your environment.  You can then formulate questions for you or your team (open ended ofcourse) to ask during the interview or simply use the “model” as a litmus test when reviewing a candidate.

Let me break these areas down further and show you how I have used them on Hiring Models and or looked for them during Interviews.  Be sure to read my 3 tips at the end!

Skills –

Hiring Model -really look at what is needed to get the job done proficiently.  Skills simply illustrate someones capabilities and knowledge base.  If you need a person to be extremely detailed, don’t just look for that skill listed in their work experiences, look for it IN the person.

Examples (customer service, computers, time management, organizational, communication, detailed, analytical, etc)

Interview – perhaps their work isn’t a great example of what they can provide. Lets say they also volunteer and run large events for a charity or church, that takes a lot of organization, attention to detail and coordinating,  so they may very well be capable of performing what you need.  That person may have not brought this experience up because it didn’t seem relevant to the job to them or they thought bringing up religion opened the wrong door.    So listen to what they offer in “icebreaker” questions, because you often get great information you can follow up on.  Asking someone to “tell me about yourself” can provide you very useful information that is technically unsolicited (which protects the interviewer).  People often have many skills that may not be used in past work experiences but may help your business.  You challenge in the interview is to find them!

-The better you know what it takes to complete a given job, and the better you can break it down to a set of skills, the higher the chances of finding someone who can excel at their job.

Personality & Attitude-

Hiring Model  – culture is important and culture isn’t found in your book of Policies and Procedures, it is found in the heart of the business on a daily basis.  Personalities help drive your culture and diverse personalities can either strengthen or break down the teams dynamic.  Personalities and attitudes are an important part of your businesses ability to generate revenue.   We have all been on those teams where either someone else on it became our best friend or we found a person that we couldn’t stand and made us want to leave the job .  So how does it fit in the Hiring Model?  Well if you are adding to an existing team,  you need to have an understanding of the interpersonal dynamics on your team.  What type of person do they want to work with?  While it has nothing to do with completing the job, it has a lot to do with how comfortable that person will be with the existing group of workers.  If the person is uncomfortable or makes others uncomfortable, quality and productivity may go down and turnover may go up.  I am not suggesting clones, but similar or complementing styles.  Building a new team for a new venture like Stephanie mentioned is a great time to build a synergistic team because you are hiring everyone at the same time.   Read a case study where this had a huge impact.

Interview – One great way to assess this is to have a “key” employee(s) interview the candidate also.  If all parties think they can work with this person,  you can feel much more comfortable with the “fit”.  Lastly, as a manager you do not manage peoples personalities you manage or correct their behaviors.   You only get one chance to make a decision based on someones personality and that is in the Hiring process.  Terminating based on personality can get a business owner into legal hot water.

Work Experience –

Hiring Model – this one really depends on what job you need filled.  Regulatory or certified level employee’s need a certain level of experience to show they can perform and are competent.   But for most positions, if you focus on a candidates experience you are really focusing on the level of training the past job(s) provided this person and the management staff of each location.  I have seen people work their way through levels of management that weren’t really qualified to even be a supervisor on my team.  Titles are nice but don’t hire primarily on the titles someone has attained.  Many hiring managers falsely assume that experience implies competence.  Competency is what you really need to look for in this category.  In forming your Hiring Mode think about two things;

  1. What do you need this person to be competent at?  Which of the skills you listed will this person need to use most frequently?  Pick the top 2 or 3 and focus on those.
  2. think of the Top companies you may want to see candidates from, or key positions that are similar to what you have available.  You will find particular companies that share Hiring, Training & Development styles with your company, and those typically provide good candidates.

 

Interview – Form questions around how they got those jobs, what they felt they learned while doing them, and how those experiences help them be a better employee today.  Quiz them a little in areas they need to know to do this job to help gauge competency.  Usually in this area you can also get a good sense of what they are like to work with by asking questions around co workers or how they responded to a supervisors feedback.

When assessing professional experiences I always look for progression.  Do they aspire to move up the ladder?  or are they comfortable doing the same thing day in and day out?It is important to match this to your position yet ambition is important to a degree in all candidates because you need your new hire to have ambition in there new position.  Do they seek resources when faced with a challenge or take an easy way out like “just do as I am told” or my favorite “not my job”.  Clearly you need to insure their level of ambition is realistic also, someone who thinks they will be promoted next month may not be what you need!  History WILL repeat itself here I promise.

I strongly recommend questioning about jobs they have had that may not even be pertinent to what you want this person to do.  Ask “how they achieved, why they wanted that, what did they take away from it” and you may be very surprised in what you find.  But do not disqualify someone just because of certian job experiences, this can be a huge mistake for an interviewer.  Sometimes great people have to accept jobs at mediocre companies and often large companies hire and promote people for the wrong reasons, it is just to hard to tell which it is on an application you are looking at.

Lastly, consider how long it may take in the positions listed from a candidate to be competent and what the persons next roll was.  Ultimately think of what accomplishments you would like your candidate to have as it relates to there Work Experiences as a gauge.

Values –

Hiring Model– probably the single most important part of a Hiring model in my opinion.  What are the core values of your company ?  Core values should be a guiding force behind all hiring and firing in your company.  You may have 3 or 15 of these, figuring our which ones may be most beneficial to the position you are hiring for can help build a great  Hiring model.

Some examples of commonly found “Core Values”.

  •  If hiring for a service based position, you may want a person to exhibit “Loyalty” or “Passion to serve others”.
  • Someone who will be working with the public and excepting cash needs to be “Customer Focused” yet firm enough  to “Protect company interests” in the event of a small confrontation.
  • Someone in sales needs to demonstrate “Patience” yet assertive and “Willingness to listen” is critical to close a sale.

If you don’t have these printed on your wall somewhere, jot down single words or small phrases ahead of time to help you keep focused during an interview and give others a better idea of what type of person you are looking for.  Another method that works is to have a tick sheet with you when you interview.  Have all the Core Values as column headers.  Every time you feel someone exhibited that value in your interview(s), mark it down to review later.   Get people talking and telling stories about work, school, or even volunteer work  and you will probably find common links.  The more you hear a particular value the more genuine it usually is.

3 tips on matching your model employee to candidates

  1. Sometimes the best employees are the ones with little “work experience” and huge similarities with the values, personality, and attitude you need in this position.  
  2. Skills can be taught, and I would rather teach someone how to do it then someone else doing it.
  3. Training on Values, Attitude, and Personality won’t happen.  People generally don’t learn these, they only conform to company policy.  Having a natural fit will benefit the workplace greatly.  Assuming you have the means (time, resources, systems, etc) to provide skills train, this can help you build a sustainable workforce the helps generate revenue for your business.

Questions?

 

 

Hello World!

Ask an Expert, Conversations with a Consultant, Marketing, Operations, People, Products, Quotes, Observations & Ironies, Uncategorized,

Today I am introducing a new blog series from C.S.Simons Consulting.  This blog will feature several different types of content on the issues that business people struggle with every day.  Advice will be given on a variety of subjects that directly effect your revenue and we are always looking for questions or topics for discussion, so please don’t be shy.

Here’s a quick overview of the categories we offer;

“Ask an Expert” Series

A collection of questions asked of me or my collaborators about many different business or management topics.  Presented simply with brief answers but we are always available to elaborate on them if you’d like.  These may be answered by someone in our firm or other experts we collaborate with.

“Conversations with a Consultant”

The format in this series is designed to be easy flowing with out too many buzz words and corporate talk.  Just simple conversations, focused on information designed to assist you with your work and help you make more money.   The majority of these topics will fall into 1 of 4 areas; People, Products, Operations, and Marketing.  These 4 key areas’ are found in every business and are the most important indicators of your businesses ability to generate revenue.  C.S.Simons Consulting exists to help others make more money, and these are the same areas focused on in our proprietary “M.O.R.E. Assessment Tool©.

“Quotes, Observations & Ironies”

Favorites and classic quotes, probably some opinions on business related current events and those that know me should expect periodic sarcasm.

 

Please let me know any questions that you have about these topics or how to implement the changes mentioned into your business.  I am here to help.

 

Carpe diem!

Ask an Expert

Ask an Expert, ,

The Question:      What are Prime Costs?

Answer: Financial speak

Prime costs = materials + labor

Prime cost is a GAAP (Generally Accepted Accounting Principles) term that refers to the costs of all materials plus the labor needed to create your product.  They are called prime because of the effect they have on profitability.  They are the “primary” contributors to your profits.

In many circles this may be referred to as “Controllable or Variable Costs”, because you have the greatest flexibility to control your profit with them.  The organization controls what you pay your labor and you can work with vendors around pricing of materials.  Most other costs in this scenario would be deemed “Non Controllable Costs”, such as rent, taxes, or utilities.  Some argue that rent is negotiable, therefore controllable, once it is agreed upon it doesn’t change unless negotiated again and therefore it is considered a non controllable.

Many industries break down the label of “materials” to other labels or set formulas specific to that industry.  But “Prime costs”  will always be cost of necessary materials(or services) and labor in the end.

For example;

Prime costs in a manufacturing business may include a distribution channel cost because of the costs associated with marketing it, the marketing is necessary to the distribution of that particular product and with out those costs the product would not get to market.  It is essential yet controllable, so it is a prime cost.

OR

Prime costs in the restaurant industry are known as the “Big 3” Food, Labor, and Liquor”, while there are other controllable costs these are the 3 that have the most effect on profits.

and so on…..

Carpe diem!