As a business coach, I work with folks from many walks of life, but due to my background in the handcrafted soap and skin care industry, I coach a lot of aspiring soapmakers, which I absolutely love.
I love working with ambitious, creative people who want to get their crafted creations into the hands (and bathtubs) of many. And I must be honest, I can’t offer much help in the context of formulations, production techniques, etc…you all pretty much have me beat on that (did you watch our FB Live Video on cupcakes!…disaster!).
In my own soap business, I really focused on being a commodity-driven soapmaker, so my bars were pretty plain and boring compared to what I see from most of you.
So no, my strength in coaching is not helping you with soapmaking; it is helping you with the business side of things…the ugly, heavy lifting of the books. I thoroughly enjoy this and it has been an honor to see some of my clients raise their gross profits by over 60% in just one year.
This type of success takes a different approach to business, namely the idea of cost cutting and saving as much as possible, which leads me to operating expenses:
Most soap and skin care owners believe that the best way to make more profits is by increasing sales, which sounds right. But that brings up a conundrum – in order to increase sales, there has to be a corresponding increase in costs because of the increased amount of work involved. But increased costs are just what need to be curtailed, right?! Therefore, another way of going about lowering costs is by controlling them, and thus increasing profit margins.
You can’t really change your fixed costs…it is inherent in the term; “fixed.” Fixed costs are things you know you have to pay on a timely basis (usually monthly). Rent, mortgage, payroll taxes, dues and subscriptions, gas bill, water bill, electric, insurance, etc…
Those fixed costs are just that…fixed. No way around those, so we just have to accept those and move on.
Variable costs on the other hand, generally fluctuate with sales. A perfect example of a variable cost is raw materials. The more profit you bring in as a business means you are selling more, which means you are using more raw materials, which means you are spending more on raw materials.
Thus, raw materials are variable, based on how much your business is bringing in. The more you sell, the more raw materials you have to buy.
And here’s the rub with a lot of folks I work with…
Because raw materials are variable, meaning the more you sell, the more you need to purchase, it stands to reason that the less you sell, the less you need to purchase; which on face value is true.
But most makers I know will instead keep spending on raw materials in order to continue to creatively express a new product, experimentation, etc…
While this is encouraged, it is also depleting your business account of much needed resources.
And this is where I am talking to the folks out there who are ready to make that leap into a real business. If you are a hobbyist, spend away! No worries! I understand it completely and have been a part of that process.
But if you want to get your business up and going, you are going to have to cut back on your expenses. Again, fixed costs are fixed costs…not much you can do about those, but your variable costs are in your control. If you are having a slow month, yet you want to spend money on some micas or fragrance oils you’ve never tried before, I’m not telling you to halt the purchase, but to simply be aware of what you are spending your business money on.
In my opinion, most startups spend way too much on raw materials and not nearly enough on branding and marketing. If you invest into more and more marketing techniques, fine-tune your logo and name, streamline your packaging design and methodology, etc…your investment into these will give you a greater return in the long run versus spending money on experimental product formulation.
I want to reiterate that I am not suggesting you don’t spend your money on the stuff you want…only that when it comes to margins in the marketplace, soap has very, very thin margins based on what you can sell it for (market perception), so saving that money becomes imperative to grow your bottom line.
Once you take out your raw materials cost, labor cost, an appropriate portion of your fixed and variable costs (your operating expenses), and then your federal, state and local taxes, you are left with a fraction of what you sold the bar for. That fraction is the net…your “bottom line.” If you over-spend on marginal items, Your bottom line can quickly become a negative number. Your business would be operating at a loss on the books.