Are logs a sideline or a full time business ?

[Kev Stephenson]

From what I can see you need to increase your prices as per inflation to stay static.

 

If you want to increase your profits (and earn more in the real world) either increase your rates above inflation or increase your rates the same rate as inflation and sell more loads or leave your prices the same and need to sell loads and loads more than last year.

 

Example

 

2010 you sold 200 loads at £200 per load and each load cost you £100 to take from cord to delivered (cord, depreciation, etc included - not wage)

 

£40,000 turn over, £20,000 profit/wage

 

2011

 

Option 1 - You sell 200 loads at £200 per load but each load cost you £110 to do

 

Still £40,000 turn over but only £18,000 profit/wage

 

That £18,000 still has to pay your weekly shop (which has gone up 10% in the last year) and fill your car with petrol which has also gone up. You are worse off than last year.

 

Option 2 - You increase your price by £10 per load to cover the increase in costs and your turn over is £42,000 and profit is back to £20,000. You are still worse off than last year as your cost of living has gone up by 10%

 

Option 3 - You increase your 2010 price by £20 per load. Your turn over is £44,000 and profit/wage is £22,000. You are now in the same position as you were in 2010 - a static business.

 

Option 4 - Work harder. You increase your 2010 price by £20 per load and sell 250 loads. Your cost per load is still £110.

You turn over £55,000, your wage/profit is £27,500. Happy days a growing business

 

Option 5 - Work smarter. You still sell 200 loads at your 2011 price of £220 per load but managed to hold your manufacturing cost (cheaper cord or multi drops so use less diesel, etc) to £100.

 

You turn over £44,000 your wage/profit is £24,000. Happy days but you can only go so far with this before you need to sell more loads to make more profit

 

Option 6 - If you have been selling out every year increase your price to £250 per load. Cost per load is £110

You turn over £50,000, your wage/profit is £28,000

 

Or even better combine 4,5 and 6

Edited September 6, 2011 by Kev Stephenson

[Stephen Blair]

i always think of profit in percentages, every year i add more kit, take more money and try and have a better easier life, and still hopefully make no less profit than the year before.

I know nothing about economics, i go buy what food is in the fridge, car in the drive, kit at the yard, money in my bank and how sore my back is lol

[gensetsteve]

It may have been quicker/simpler to illustrate this way:

 

40 years from now, £20k profit isn't going to be worth anywhere near what it's worth today. That's what's wrong with making the same profit year after year and hence the need for growth

 

Doing the same work in 40 years time if it does not keep up with inflation the service you provide will be valued less so you need to find something else to do. Doing more of something that is less valued is not growth.

[mikey10]

You're quite right. Unfortunately though, it's not always as simple as putting up prices to balance it out. Granted, heating is as essential to a family as shelter and food but that doesn't necessarily mean that you can just raise prices in proportion to inflation to make the same profit as the preceding year. It's no revelation to state that we're in an epic recession - that means the public (especially the less wealthy) will hang on to every last penny they can before handing over any more money. The proof is in the pudding - the puddings that are being left on supermarket shelves because they are a luxury and not a necessity. Where people were happy to spend twice as much for a branded loaf of bread (and, in my opinion a better, softer one) during our boom years, nowadays the supermarket "economy" labels are selling out fast while your Kingsmill loaves are ending up with "whoops" stickers on them.

 

In a proper recession, people begin to look out for number 1. What does this mean for firewood? In my area it means that some of our otherwise loyal customers look elsewhere; they find suppliers 15 miles up the road who haven't increased their prices. As far as they're concerned, we're just greedy fat cats like the rest of the energy suppliers.

 

Truth is, to keep up, we have to process more and sell more than last year. Yes, our prices may be a little higher than the previous year but not to the extent that we could sell the same amount of firewood and arrive at the same amount of profit as the previous year. Therefore, we have to grow to survive. Things will be different in a boom period (if indeed the monetary system hasn't collapsed before then) but we have to grow to achieve the same amount of profit as the previous year.

 

I truly hope others in the trade don't face this same sort of problem but this is my experience in the north

 

Well those people 15 miles up the road have been calling me, and my prices have gone up, i am getting lots of calls from new customers who say they can not find any one more local who sells decent dry wood, and they got fed up of trying to burnt wet wood last year, but yes i have produced more logs this year so hopefully i will last past january before i run out, all depends on the weather:biggrin:

[gensetsteve]

i always think of profit in percentages, every year i add more kit, take more money and try and have a better easier life, and still hopefully make no less profit than the year before.

I know nothing about economics, i go buy what food is in the fridge, car in the drive, kit at the yard, money in my bank and how sore my back is lol

 

I always think of profit as quality of life, every year a buy a few shiney toys, I dont know about economics either, I go by if the food in the fridge has mould on it and if there is any beer, If the car in the drive will start and how big my overdraft is

[One Eyed]

Increasing prices in line wih inflation (or otherwise rising costs) is not growth.

 

I know and my earlier post was trying to get that across. What I'm trying to say, as per the original question of 'why grow?' and 'why not make same profit year after year?' is that 5% inflation gives a compelling reason to expand. Find other relevant products to sell, add a kindler to your set up, buy a fleet of artics and sell your wood all over the world - whatever. If I make the same profit next year I will be poorer for it because all my living costs will have gone up.

 

I think I've been misunderstood somewhere because my argument is that increasing prices in line with inflation doesn't work. I'm saying that to overcome rising costs and not go stagnant a business needs to grow. Just because I use the term "grow" in the same paragraph as talking about increasing sales and prices doesn't mean this is my definition of growth.

[likeitorlumpit]

Doing the same work in 40 years time if it does not keep up with inflation the service you provide will be valued less so you need to find something else to do. Doing more of something that is less valued is not growth.

 

That is so true

Others move into the market and the price comes down

Adapt and survive

Growth just gives you more possibilities to adapt from.

[Daniël Bos]

I know and my earlier post was trying to get that across. What I'm trying to say, as per the original question of 'why grow?' and 'why not make same profit year after year?' is that 5% inflation gives a compelling reason to expand. Find other relevant products to sell, add a kindler to your set up, buy a fleet of artics and sell your wood all over the world - whatever. If I make the same profit next year I will be poorer for it because all my living costs will have gone up.

 

I think I've been misunderstood somewhere because my argument is that increasing prices in line with inflation doesn't work. I'm saying that to overcome rising costs and not go stagnant a business needs to grow. Just because I use the term "grow" in the same paragraph as talking about increasing sales and prices doesn't mean this is my definition of growth.

 

This is simply not true.

If you sell 100tons at price A, to keep up with inflation all you need to do is sell the same 100tons at 1.05xA.

Assuming all other costs associated with that produce have not risen in price more that inflation there is simply no need to grow!

 

I'm happily running my stagnant bussiness, take on some side ventures if the mood takes me. Make sure I have dinner with my whole family everyday, take my girls to school in the morning and squezze a little work in between if I feel like it.

[One Eyed]

This is simply not true.

If you sell 100tons at price A, to keep up with inflation all you need to do is sell the same 100tons at 1.05xA.

Assuming all other costs associated with that produce have not risen in price more that inflation there is simply no need to grow!

 

I'm happily running my stagnant bussiness, take on some side ventures if the mood takes me. Make sure I have dinner with my whole family everyday, take my girls to school in the morning and squezze a little work in between if I feel like it.

 

Arriving at the same profit as the previous year by putting your prices up in proportion with inflation (i.e. 100 tons at 1.05xA) is not keeping up with inflation. Your family dinner has just gone up 5%, so has your girls' new school clothes/shoes and stationary, not to mention the fuel costs IF you drive them to school. In fact, everything has gone up so how can you claim to be keeping up with inflation?

 

Remembering that my comments were directed at the question "what's wrong with making the same profit every year?" - You've not had a pay rise since starting your business because all you've ever done is increase your prices to attain the same profit as the year before yet, all costs of living have increased!

 

Each to their own but I feel much more secure growing my business and I do this at no cost to my family (agree with you there - family is priority!).

[gensetsteve]

There is nothing wrong with growing your business. But sometime it can turn into a bit of a monster especially if you dont get the employing people bit right. If you grow it you need to get through the growing pains so you can let go and enjoy the profits.