Profitability is simple in theory: your business makes money by selling things. Specifically, you spend (invest) money to make your products, then people pay you money to buy your products, and the difference between what you took in and what you spent is your profit.
Ok, no. You knew that. But did you know that there’s a way you could be keeping more of that money (aka increasing your profitability!) without raising prices or sacrificing quality? It’s something big companies do, and you can do it too: improve your Yield!
What, you’ve never heard of Yield???
Gary hadn’t either.
If you’re a regular PCat reader, you know that Gary is an accountant who has a side business baking cookies.
Sometimes he has to throw out a few cookies from the batch because they get dropped on the ground, or they burn, or whatever.
Gary’s Yield is the percentage of cookies that Gary doesn’t have to throw out (ie, the good ones). So for example, if he starts a batch of 100 cookies and has to throw out 15, his yield would be 85%.
Gary honestly hasn’t really thought too much about this. He just makes enough extra cookies to satisfy demand and calls it good.
But when Gary’s friend Process Cat stopped by and heard about this, he disagreed.
Defective cookies (“scrap”) harm profitability in all aspects of Gary’s business!!!
- He’s wasting time and oven space that could go to making good cookies
- He’s wasting money on the ingredients for those cookies
- He’s not getting anything out of that wasted time, space, or money!
This is distinct from, for example, spending more money to get better-quality ingredients. Then the money isn’t necessarily “wasted” because it’s giving Gary’s customers some benefit which likely results in repeat customers and better word-of-mouth.
With scrap, though…
Ok, we get it. Yield = Profitability. Did you really have to burn that money???
Look, Process Cat is usually very patient but he really needed to make a point this time! By ignoring Yield, Gary is literally ignoring his own profitability.
But once Gary understood the importance of it, Process Cat revealed that…
Understand what Yield is, and notice how improving it can help you keep more of your money with really no drawbacks! And come back next time to learn how much money you could be keeping by improving your yield.