Page 42 - The Bootstrapper Bible

ChangeThis 4. WHAT’S THE COST OF MAKING ONE SALE? Itʼs the cost of the driver and fuel divided by the number sold each hour. This leads us to Question 5: 5. WHAT DOES IT COST TO MAKE, PACKAGE, SHIP, AND INVENTORY THE ITEM YOU JUST SOLD? If you know this, you can figure out: 6. WHAT’S YOUR PROFIT ON ONE SALE? And then you can guess: 7. HOW MANY SALES CAN YOU MAKE A MONTH? If we add in the cost of advertising, training, overhead, and the rest, youʼve just mastered the value chain. And youʼve discovered how you can make your business profitable. For example, letʼs say it costs you $5,000 a month in overhead to run the machine that makes your products. The price of each product is $2 and the cost of each is just $1. If you can figure out how to boost your sales from 5,500 units a month to 6,000 units a month (an 11 percent increase), youʼve just doubled your profits. Business model jocks call this “sensitivity analysis.” Itʼs a way of looking at the pressure points of your business. If you know these before you even open the doors, youʼll have a much better understanding of what to focus on. Hereʼs another example. My father makes hospital cribs. Heʼs got a big factory filled with punch presses and painting bays and other awesome equipment. The plant is old, but itʼs paid for. A sensitivity analysis on his business shows that keeping the factory filled isnʼt the smartest thing to do. Thatʼs because labor and inventory and cost of capital are far more | iss. 6.01 | i | U | X | + | h 42/103 f