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3 Key Concepts of Profitability (How Making Money Really Works) for Job Shops and Machine Shops

In the last 3 posts, we’ve demonstrated 3 Key Concepts for making money and increasing profitability:

  1. We discussed the fact that “Throughput-margin is Additive”.
  2. We demonstrated the effect “Lost” Time has on the financial statements.
  3. We then showed you how increases in Productivity (not efficiencies) can substantially increase your bottom-line.  We also discussed operational productivity vs financial productivity.

If you’re a business owner, it’s also very likely that you’re thinking while these examples make sense, they’re just too simple to be meaningful to you at your shop.

You’re right. Your shop is different. Your shop is special. And your shop is unique.  No argument from us, we know job shops are complex.

No one else has your capabilities…or your customers.

We call this mix of characteristics your special circumstances. And it’s these special circumstances we leverage to help you substantially increase your net profit.  (Check out our 7 Pricing Tips for Job Shops and Machine Shops for detail on special circumstances.)

In fact, you’ll oftentimes hear us mention the fact that we like working with shops that have what we like to call “custom-custom” types of jobs.  All job shops do custom work, only a select few can handle custom-custom jobs.  These shops can have even more upside potential for making more money and increasing profitability.

And as you know, implementing a pricing system built around Throughput Accounting will not be as easy nor as simple as the examples our emails.

For starters if you could just get one more job done you would’ve already done that! Perhaps. But it’s also true that we work with many shops who are initially blocked from taking the necessary actions due to cost accounting or their ERP’s system.

Furthermore, suppose you implement a Throughput Accounting pricing system and it is determined that several of your customers are candidates for a price increase.  Are they simple going to agree to higher prices? Not likely.

In fact, that is why we favor a variety of other methods to increase your profitability rather than price increases.  Price increases are risky, and they don’t risk just the job in question – many times they can risk an entire customer relationship or even your reputation in the marketplace.

Also, let’s not overlook the fact that many job shops experience seasonality with periods of peak demand and periods of lower activity.  How can any pricing system cope with such great swings in your sales?

Finally, and this is perhaps the most damaging belief (other than cost accounting) that shop owners put their faith in: the notion of a “market” price.

Many times, this leads shop owners to believe the only way to be profitable is to pursue cost reduction strategies.  But as we’ve mentioned in an earlier email, it’s not likely you’re going to find all that much to cut.

It is with all these considerations in mind – plus many, many more – that we built Job Shop Pricing.  Job Shop Pricing has the tools necessary to enable you to navigate these circumstances and provide you the confidence you’ve been looking for in a pricing system.

Check out the Job Shop Pricing FAQs.

Now, as we mentioned, every shop is different and unique, so we can’t tell you in this email that Job Shop Pricing will be a fit for your shop. However, if you sign up for a free Strategy Session, we can discuss your special circumstances, and mutually determine if your shop is a fit for Job Shop Pricing.

To find out how to get more jobs done faster, check out the free Velocity Scheduling System webinar.

To find how to substantially increase your shop’s bottom-line, sign up for a free Job Shop Pricing Strategy Session.

Here are some Job Shop Pricing client results.  You can get their full stories by signing for the 7 Pricing Tips and 2 Fatal Flaws report:

Increasing Profitability Example 1 Increasing Profitability Example 2 Increasing Profitability Example 3 Increasing Profitability Example 4 Have you given up on making money?

To find how to substantially increase your shop’s bottom-line, sign up for a free Job Shop Pricing Strategy Session.