Labor costs, the silent killer
Updated: Apr 18, 2022
Labor costs can kill a business without the average business owner even being aware it is happening. How? When they start a herbal business, they often are working alone. As they are the ones making the product and/or packaging it, they either think their labor is free because they are not drawing a salary or they don't even consider labor costs at all. As a result, when they do the math to determine the price for their product, the price that they come up with is missing the labor component. This doesn't have a big impact in the beginning. Yes, you are working for free, but as many herbalists often start out with their herbal business being a side hustle, they are willing to charge less for their products to develop a customer base.
Where things tend to go off the rails, is when the business starts to get busy. They have so many orders they have to hire help. However, they don't understand why orders are flying out the door but the balance in the bank account isn't getting any bigger. They are worried if they raise their prices, they will lose customers, so they stay on the treadmill until the money, or the energy runs out.
It doesn't have to be this way. If you account for labor costs when you first start out, all of this can be avoided. Even if you don't draw a salary, there is a cost to manufacturing your products and it has to be accounted for. By including a labor rate that is equal to what it would cost you to hire someone part time, you are setting yourself up for success in the future. All of your costs will be accounted for and the price you calculate for your products will be accurate.
Yes, this can be a bit time consuming. Thankfully Kerrii has built in tools that track labor costs which make this easier. However, even if you aren't using Kerrii, you really only need to track the labor the first few times that you make a product. Once you have determined its price, there is less of a need.
Another benefit to including labor costs in your pricing is flexibility. Instead of having to wait until your business is really humming, you can hire someone to help earlier. You are a skilled worker, so your hourly rate is much higher than say a high school student. If you can find a student who is keen and train them to produce products, you can spend your time where it is more valuable, developing new products and seeing clients.
I know what some of you are thinking, "If I include labor costs, my products will be unaffordable for my customers." If that is the case, then you shouldn't ignore your labor, you should find a more efficient way to produce your product. There are many ways to get labor costs down. Some of them are:
Rearrange your workspace so you aren't losing time moving from place to place or looking for things
Purchase equipment that will increase efficiency (make sure you can pay for the cost of the equipment within a reasonable time)
Combine or eliminate steps in your manufacturing process
Hire someone with less knowledge that you can train who will work for a lower rate.
If none of these are options, then you will need to consider changing your ingredients or packaging to bring the product price down.
Labor costs don't have to kill your business silently. If you address them right from the beginning you can gain control not only of your costs, but also of your business. Why not make the whole process easier and just purchase Kerrii?