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Cold Stone MBA: Critical Systems

February 24, 2012

Where are your costs?  Where are your revenues?  Where is your profit?

These three questions generally point you in the direction of where you need to spend your management time, energy and dollars.

The urge to manage costs too closely can consume an over-proportional amount of energy without discretion.  Over-focusing in this area can divert your attention from where it ought to be:  profitable revenue.  However, each business has “large ticket” costs that can have a huge impact on profitability if managed well.

For Cold Stone, over 75% of our costs come from food supplies, labor and rent.  Benchmarking with other stores, our food costs were a few points high, labor costs were average, and rent was double.  It quickly became clear where our opportunity was to get our costs in line.  However, it is also clear that food costs and labor costs are definitely critical systems that require ongoing management attention.

Do you know where your big ticket costs lie?  Are you spending your management time on these areas?  Are you spending too much time trying to cut insignificant costs?

Cold Stone revenue comes from three general areas:  walk in customers, catering and cake sales.  Catering and cake sales generate the highest profit.

Catering and cake sales are relatively unknown products, with significant growth potential.  These are critical growth areas; investment of marketing dollars is going here.

But over 90% of our current revenue is generated by the store traffic, generally folks who frequently hang out in Royal Oak, so another critical system is customer service, which leads back to management of labor.  Labor also impacts food costs through portioning, waste, etc.  Labor is the most critical system to manage in the business.

Having the right people in place, doing the right things, keeps the ship right.  Like the professional service industry, management of our people must be our top priority.  How much time and energy are you investing in this critical system?

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