FROM THE DESK OF Karen DON’T IGNORE PROFIT MARGINS D ive I nto the N itty -G ritty of Y our F inancials MAY 2 0 1 8 #DramaFreeHR News
Welcome to the first edition of our newsletter! Personally, I am so excited to offer you something beyond just the “HR stuff” we talk about every day, because our lives are certainly made up of much more! Most likely, each issue will have a story about my hounds — outside of HR, they are my passion and joy! We started adopting retired racing greyhounds in 1996. We recently completed a road trip — 17 days, eight hotels, 2,800 miles — and the best part of the trip was the opportunity to reunite our newest hound (Craigie Coldshot, aka Copper) with his trainer and the folks in the kennel who took care of him for the two years he was at the track as a moderately successful racer. Talk about people with passion for their work! First turnout for the hounds is at 5:30 a.m. If a race day includes a matinee and an evening show, kennel staff work until about midnight! Our trainer knew every hound in his care , and he remembered Copper as well. The amazing part was that Copper remembered him too! The trainer knows the likes and dislikes of every one of the dogs in his care. He has one little hound who will only eat her apples whole — if he cuts them up, she won’t eat them!
It can be hard to talk about business in an abstract context. That’s why we’ve created a fictional company in one of the country’s fastest-growing industries to illustrate how profit margins apply to growth. Castaway Brewing began as a small nanobrewery with wholesale distribution as their only means of generating revenue. They operated for a couple of years with very limited overhead after receiving gift funds to start their business, and they paid no rental fees for their workspace. Their brand was steadily growing, and their profits followed suit. The owners weren’t sure how to expand their operation and still sustain growth. They decided to take a close look at two specific profit margins to see the potential feasibility of long-term growth. MARGIN FOR BUSINESS A company’s operating margin is a measure of how efficient the business is as a whole. Operating margins are calculated by dividing a company’s operating income (total profit after expenses) by net sales. MARGINS FOR PRODUCTS Gross profit margin is an indicator of the profitability of a specific product. It’s calculated by comparing the revenue of the product to the cost of goods sold. Castaway only had three flagship beers, but the gross profit margins were substantial on every one of them. Wilson Pale Ale operated at a 60 percent margin, Bamboo Brown Ale at a 55 percent margin, and Sandcrab IPA at a 50 percent margin. With few employees, limited overhead, and three products that produced high individual revenue, the overall operating profit margin of the company was in great shape. With this foundation, the brewery was ready to expand and take on the giants in the industry. But first, they had to figure out their strategy.
Imagine working in a field you are passionate about. I’m blessed to do so every day of the year, and I’m blessed to have you here on the journey with me!
- Karen Young
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