How Business is Doing

When an old friend asks how you’re doing, they’re probably not looking for chest x-rays or the latest on your gall bladder. So when customers ask how the business is doing, we often just say “pretty good” and leave it at that.

But since a lot of folks have been probing for more details lately, I thought I would give an honest and thorough answer, as best as I am able anyway.

The short answer is that small businesses are unbelievably complicated, but from the information I have, I think the business is doing ok. Our growth slowed through the first half of December, which looked about like October, and I’m guessing the second half of December will look a bit worse than September. We’re hoping that growth will pick up again after the holidays.

Here are some charts showing daily gross sales relative to our current financial goal since August, and also all the data I have about how many conventional bananas we’ve sold per day over the last year. (You can click the pictures for bigger versions.)

To explain these charts, unfortunately, I will need to bore you with another long post which is after this link.

Let’s cover some basics first. Here’s approximately how our monthly operating expenses break down.

A few costs, such as sales tax, inventory loss (theft, produce that goes bad, and expired or damaged items we don’t get distributor credit for), and some credit-card processing fees scale with our gross income, so they effectively reduce our gross margin (% of gross that is profit).

Say we realize a gross margin of 30%, which would be pretty good for a produce store. Then to be a viable business we must gross G per month, where 0.3*G > 8336. That means we need to gross $27786 or $926 per day. This is really an optimistic estimate though, because

• Our gross margin probably isn’t 30% (but it is still hard to say what it is!).
• We need to grow inventory. Over the long run inventory costs are built into gross margin, but when you initially grow inventory, it costs cash to do it. That money can come from distributor credit or investors, but if not it has to come from the gross.
• We need to make improvements. The store needs an awning, a display fridge, and probably a 3-compartment dishwashing sink or commercial dishwasher to make the most of its present space. Again, this can come from credit (loans) or investors, but if not it’s got to come from the gross.
• Our actual liability for debt is higher, and we are just addressing what we are able to deal with at the moment.
• We have serious incidental expenses (stuff breaks sometimes).

So our current stake in the ground goal is to average closer to $1000 gross per day. As you saw in my first chart, we got close to that goal in September, then met it for the first time in October and November. December has slowed down a bit.

I believe the key factor is customer growth. According to this fascinating article in the riveting Produce Merchandising magazine, a sure centerpiece for any empty coffee table or bathroom rack, bananas are the most popular kind of produce with steady year-round sales, though demand tends to fall in the summer as more summer fruit becomes available. Look at what’s happened to banana sales at Open Produce over the last year.

Things were pretty messy in 2008, but then we picked up again with the start of 2009 and started growing slowly and steadily. We made a bunch of improvements in July and August which saw a slight increase in growth, but these improvements included better point-of-sale data collecting so I can’t be sure this isn’t just noise. Bananas took a nosedive between summer and fall quarter at the University, then shot up with the return of students.

I suppose any given person may suddenly decide to start eating more bananas, but it seems likelier to me that the number of bananas we sell is proportional to our total customer count. So if the number trends up, it probably means we’re getting and retaining more customers. What this means to me is that our hard work is finally starting to pay off, we are adding new customers and are on a good growth track.