Running a small business can be hard, but it’s impossible if you’re not actually making money. We lifted the curtain a little on how to understand your breakeven and what you can do to make sure you surpass it.
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About Our Guest:
Jill Badger
Interim Director of the Toledo Area Small Business Development Center
Jill Badger is the Interim Director of the Toledo Area Small Business Development Center. The Small Business Association is a national organization, free for any small business to utilize as a resource without having to become a member.
The Toledo Area section has been a part of the Toledo Chamber of Commerce since its founding, contributing to an expansion of resources and knowledge available without small businesses being required to join the Chamber itself.
Jill has been working with the Chamber and Center for almost 7 years and stepped into the Director position back in September, though she has long had an active hand in managing the center. Jill herself specializes in financial advising and utilizes a diverse team and network to bring her clients the best advice possible.
Podcast Transcription
The Breakeven
One of the hardest things to do as an entrepreneur is to take your great idea and actually build it into a sustainable business. It’s never about just sharing your product and watching it sell. It’s about identifying your customer base, finding staff, establishing prices based on the cost of materials, labor, and overhead, and aligning everything with your blossoming brand identity.
The important thing is to find that breakeven point between your cost and your sales, then surpass it. Of course, no business starts off making a profit right out of the gate. Businesses take investment and time to grow, but if you’re into the thick of it and your cost outweigh your revenue then you need to change some things.
It’s also important to make sure you’re taking all costs into consideration and not leaving anything under the rug, quietly draining your money, and that you make sure you pay yourself as well.
After you, then you look at establishing a competitive but fair price (fair to you as well as your customers). Once you have both things calculated, you need to know how much business (your minimum capacity, number of sales, etc) you have to reach every day to break even.
Can you do it? Some businesses can’t and that’s where change comes into play.
Establishing Your Customer Base
An easy mistake many businesses make is casting too wide of a net when looking for customers.
Not everyone is your customer.
While that may seem like a hard pill to swallow, think of it as your saving grace. You don’t have to try to sell everyone and you don’t have to try to make everyone happy. They’re not all your customers, so it doesn’t make sense to cater to everyone.
The trick is to understand who could benefit from what you do. Be realistic. Look at a geographic location, age demographics, and other differentiators to establish the type of person to who you can connect your brand.
Why is this a saving grace?
Imagine walking into a crowded room (let’s say Pre- or Post-COVID). Everyone is grouped off talking to friends and colleagues alike. You’ve got a bus outside to take people to the most amazing event of the year and you’re excited! Are you going to just start talking to the whole room?
That’s what just throwing marketing out there is like or trying to just sell to anyone who comes along. Except the room is even larger than you initially thought, and everyone is talking, so even shouting only the people nearest hear you.
Some of them are a little concerned that you’re shouting to a giant room, some don’t care, and maybe two people actually pay attention to you. Only a few people join you on the bus (in this case, they become customers of your business). Even if you could get the whole room to respond, you don’t have enough seats on the bus to fit them (just as you don’t have enough capacity as a small business to take on more than a certain amount of business at a time).
Establishing a customer base is like finding a few groups that you know will care about the information and opportunity you have to offer and then walking over to join those groups. You become part of the conversation and they become interested in your as a person (or brand) and then you introduce the opportunity with the bus to the big event. Suddenly your bus is full of people and they’re eager and happy to join you.
That is what establishing your target customer base and talking directly to them does. You can’t surpass your breakeven with an empty bus.
Calculating the Cost of Staffing and Overhead
Part of a business’s struggle to break even is not establishing all of the costs that go into the business. We’re talking about your freebies and complimentary items, the cleaning supplies and restroom products, your phone bill, the discounts you give family and employees, and yes, the cost of employing yourself and others to get the job done.
Running a business is not cheap, but it is definitely possible if you’re doing the research and planning necessary. That means using your resources locally to understand your cost. You can also get advice on how to recruit, which anytime you need to hire is going to be a large pain point.
Staffing costs do not just include the actual pay per hour that you provide. You have to consider health insurance, workers’ comp, an unemployment fund, and more. There’s also the cost of a bad hire, which is someone your bring in who causes damages, causes a drop in productivity, and overall cost you more money, in the long run, to employ them than they help you make.
There are also recruitment costs and the cost of being understaffed. Yes, there’s a cost to not being staffed enough to handle the current workload. You pay for overtime, drops in productivity of everyone involved due to fatigue, higher turnover from employee dissatisfaction, and the loss of customers when you can complete their order to the expected level. It gets expensive.
But recruitment isn’t cheap either, so you want to be strategic about finding team members that will stick around. Think about recruitment cost about the time and money it costs you to source, interview, hire and train an employee. If you are constantly replacing people for the same positions, this can get costly quickly.
Where to Start
This can seem like a lot and finding the best place to focus your efforts first may be hard. Work together with someone like a team member from the Small Business Development Center or a similar organization to help you organize and plan.
Plan before you do start. Really take the time to look at everything involved in the processes around your business or potential business. Lay it out in front of you and make sure you understand everything as well as possible. Do your research on your target demographics, locality, building specification (if you’re moving into a new one), and your employment market.
Once you understand what’s in your hand and on the playing field, you will much more confident in your decisions and in running your business.