Trellis & Branch | About a 5 minute read
If you lead a small or mid-sized business, you know things most people never learn: your customers by name, your team’s strengths, what is coming in the door this week. What I find many owners can’t tell me, at least at first, is which of their products actually make money.
That is not a character flaw. When a business is growing, sales are the loudest signal in the room. Orders arrive, the team is busy, the revenue line climbs. Margin is quieter. It lives in the details: what each item really costs to make or deliver, how much usable product comes out of a batch compared to what went in, and what freight, rework and discounts take back after the sale.
A story I think about often
I once worked with a company that looked healthy by every visible measure. The phones rang, production was humming, and overall the business looked stable. When we sat down and calculated margin item by item, about a third of what they sold was losing money!
Nobody had been careless. Those items were priced years earlier, costs crept up, and the overall average looked fine enough to hide the problem. The strong and profitable items were quietly covering for the weak ones.
Here is what I most want you to take from this. Finding out was the start of many good decisions to follow. Once the team could see the numbers, they could ask better questions. Should we raise the price on this item? Can we make it for less? Is it worth keeping because it brings customers in, or have we just kept it out of habit?
Before the numbers, they were guessing. After the numbers, they were choosing.
What Rockefeller understood
John D. Rockefeller is remembered for size and power, but his edge began somewhere much more ordinary. He watched costs more closely than the people around him.
In Titan, his biography of Rockefeller, Ron Chernow writes that Rockefeller cut the unit cost of refined oil almost in half. For example, in a plant that sealed cans of kerosene, each lid was getting 40 drops of solder. Rockefeller asked, “Have you ever tried 38?” Testing showed that 38 drops leaked and 39 held, so the lids got 39. By Rockefeller’s own account, that one drop saved about $2,500 in the first year, and more as exports grew.
One drop of solder is a tiny thing. But you can only ask that question if you know what each piece of the work costs.
David Senra, who has spent years studying great founders on his Founders podcast, captures the same idea in the show notes for his episode on Rockefeller: “Rockefeller analyzed work, broke it down into component parts, and figured out how to perform it most economically.”
Notice that this is different from being cheap. Knowing his costs piece by piece let Rockefeller price with confidence, win business when competitors were losing money, and keep reinvesting. Cost control was how he paid for growth.
Four questions to ask this week
What does it really cost to make or deliver each of my top products or services, including waste, rework and freight?
Which items earn a healthy margin, which barely break even, and which lose money?
Am I putting most of my effort and marketing behind the winners, or the losers?
Who on my team can see these numbers, and how often do we look at them together?
One last thought
Leaders who ask this question are doing something many of their peers avoid. It takes courage to look closely at your own business, and it is almost always worth it.
If you would like a second set of eyes, a Problem Deep Dive is a short, low-commitment first step (usually two to four weeks) to find where margin is hiding and what to do about it. I would be glad to talk it through.
Nicole Ciavola, Principal Consultant, Trellis & Branch
Sources: Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. (1998), as cited in David Henderson, “Great Moments in Cost Cutting: Rockefeller Edition,” Econlib (econlib.org); Founders podcast, episode #248 (John D. Rockefeller, Titan), show notes.