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Component Manufacturing dverti$ dverti $ er
Don’t Forget! You Saw it in the
Adverti$$er
June 2024 #16299 Page #92
Design Connections
Geordie Secord, Senior Recruiter TheJobLine.com – Canada
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Profitability Metrics and Margin Dollars
n the busy world of prefabricated components, there are three conflicting metrics that owners and managers look at to determine operational performance – board feet of lumber, sales dollars, and margin dollars.
I’ll start with what I believe is likely the most common but also the least informative – board feet of lumber, or fbm. Yes, I know that it is great to see large volumes of wood move through an efficient component plant. Bunks of lumber come in, are cut by automated saws, moved easily to the production tables, then out to the yard and quickly sent off to the job site. But fabricating stacks of components that consume large volumes of lumber tells us nothing about profitability. Also, 10,000 fbm of trusses for a cut-up custom house is not equivalent to the same volume of lumber used in a single run of large agricultural trusses, or for a number of “cookie cutter” type tract homes. Of course, sales revenue is also popular. Running a plant that produces $30MM in components must be better than one that does $10MM, right? It’s the number that makes headlines and gets people excited about growth and expansion. But are your investors rewarded by sales dollars? Like the dazzling star of a high-budget movie, it’s flashy, attention-grabbing, and everyone wants to talk about it. But revenue is still only part of the picture. If your return per dollar of sales is low, it may be due to lack of productivity in your plant, sales incentives that promote gross sales rather than profitable sales, or a lack of attention to which jobs are profitable under your current pricing structure and which are not. Finally, there is margin dollars. I like to think of this as what you can take to the bank. Certainly, fbm is not currency, and gross sales are not really yours since you need to pay for all your inputs, overheads, etc. before you get to take a penny to the bank. Margin dollars are what is left after you subtract the cost of producing and delivering those trusses from the sales revenue. In other words, it is the real profit, the actual money you get to keep and use to run and grow your business. Margin dollars may be less flashy, may be less readily apparent, but it is crucial.
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