By Scott Pillsbury
For the Oregon Beer Growler
Being successful in business is all about taking intelligent risk. Nobody likes to spend more money than required in any area, but it is important to look at the payoff of your spending — not just the cost. This mindset — thinking about return on investment - is common for business strategy professionals, but not always common for small and mid-sized breweries. I suggest we need to apply this thinking to every decision in our business. Luckily, with tools available today it is very easy to measure the impact of our decisions.
This article isn’t about accounting, but since numbers are the language of business, it is important to use a real example. This is based on many assumptions, and "your actual mileage may vary," but the concept is what we are looking at here:
Question: If you were to increase your label cost by 33 percent and that resulted in a 15 percent sales increase, would that be a good deal?
— Begin with sales of 1,000 bottles at $2 each
— Assume sales increase 15 percent due to investment
— Label cost increases from $0.15 to $0.20 each
— Assume 35 percent gross margin, before and after investment
Gross profit before investment - $2,000 x 0.35 = $700
Gross profit after investment - $2,300 x 0.35 = $805
Label cost before investment - 1000 at $0.15 = $150
Label cost after investment - 1150 at $0.20 = $230
Increased label cost - $80 ($230 - $150)
Increased profit - $105 ($805 - $700)
Invest $80 to return $105 = ($25/$80) = 31.5 percent return on investment!
Based on this calculation, every $1 you invest will return $1.31. By any measure, this is a great way to invest in your business. The example here is related to labels, because that is what I know best, but it could also relate to your advertising, website, kitchen upgrade or any other area in your business.
Investing strategically in your business is all about "pulling the right levers" — you can’t do everything at once, so you have to intelligently pick the right area to invest for maximum return. Luckily, with many of these targeted investments, like labels, you don’t need to make a massive shift. Try an upgraded label with metallic ink or embossing on a seasonal label and see what happens. There is very little risk in this type of limited trial. Try something new, measure the results, and adjust as needed. This will help keep your business and your brand moving forward.
If you want to begin your strategic investment with upgraded labels, please call us today — we would be happy to help. If another area is more important right now, please contact another B.I.N.G. Member — we have many products and services to help brewers grow.
Scott Pillsbury is president of Rose City Label, a fourth-generation family business in Portland. They print for more than 60 breweries and were recently recognized as the Oregon State University Austin Family Business of the Year for 2015. Besides running the company with his sister, Whitney, Scott writes about marketing at everythingworksalittle.com.