Profitability increase of 11.2% through margin analysis
For a local bakery, we calculated the exact cost of every loaf of bread. The owner gave up 3 unprofitable products, which immediately improved the financial result.
Piekarnia Staropolska in March 2024 faced the problem of melting cash despite record sales. Foundations of Success conducted a cost audit of the production of every loaf of bread, which allowed us to identify products that generated losses instead of profits.
The challenge
The bakery owner, Mr. Andrzej, had not updated price calculations for 3 years, while costs of flour and electricity increased by over 44.8%. The company produced 21 different types of bread, but no one knew exactly how much the baker's labor and energy cost for baking a single piece of premium bread. Financial liquidity was threatened because monthly profit fell to 1.9%, which did not allow for timely payment of installments for a new convection oven.
Our approach
For 5 weeks, our specialist, Beata Malicka, analyzed purchase invoices and recorded work time on the night shift. We measured real gas consumption during an 8-hour production cycle. We divided the offer into groups and assigned them office and logistics fixed costs, which showed the actual Unit Cost for each item in the offer.
The solution
We implemented a simple margin reporting model that showed that 3 types of 'fit' bread required 42 minutes of extra staff work, and their margin after considering energy was negative. We proposed withdrawing these products and focusing on rye bread. Foundations of Success also prepared a new pricing sheet for the ordering department, which automatically updates the margin whenever the price of flour changes by more than 4.59%.
Results
After 90 days from the introduction of changes and assortment optimization, the bakery not only regained liquidity but recorded the highest operating profit since September 2019 at a smaller production volume.
Timeline
-
March 2024Beginning of cost audit and utility consumption measurement in the plant.
-
April 2024Presentation of profitability report and decision on recipe changes.
-
June 2024Implementation of new wholesale price list for external counterparties.
"I always thought that with a full queue of customers, the business must be earning. Foundations of Success showed me with numbers that for every bread with seeds I was paying extra almost a zloty. The numbers must add up and for me they finally do."