Increase your grinding revenue
Reducing cost and increasing revenue is a goal most companies have in mind when running a business. However, reducing cost isn’t always the best way to save money. In the grinding industry, most companies look to save money in the upfront cost, wheels in this case.
In this scenario an average cost of diamond wheels is $200. The typical revenue generated from grinding a saw blade is $20. Finally, typical production of saws per day is 40.
|Saw Grinding Service per part||Diamond Wheel Cost||Production Rate Per Day by a single individual||Work days in year||Life of Wheel|
A single person can manufacture 8,800 saws per year. It will take 22 wheels per year for said individual to manufacture 8,800 saws. Revenue from manufacturing that amount per year, yields $176,000. 22(wheels) x $200 is equal to $4,400 in cost.
A lot of our customers will calculate the cost of their wheels and ask for a discount of 15% to reduce the overall cost. While this may sound great, 15% of $200, results in a $170 wheel. Assuming 22 wheels are still needed to hit the manufacturing rate of 8,800 saw blades. 22 x $170 is equal to $3,740. Price reduction of wheel yields $660.00 in savings per year. That might sound amazing, but what if you could save a lot more?
To reduce your cost more, you have to use a more aggressive wheel. If you had a wheel that could manufacture an additional 6 blades per day, you are looking at a total of 46 blades per day! 6 additional saw blades per day will yield $120 / day in revenue. $120 x 220 working days, generates an additional $26,400 in revenue. While $26,400 sounds great, a more aggressive wheel might last about half as long as a normal wheel. So, an additional 11 wheels are needed to keep the manufacturing rate. 11 wheels x $200 = $2,200. Take the initial $26,400 and subtract the additional $2,200 for the cost of 11 additional wheels and you are still $24,200 ahead of the game!
Now to be real, most companies will not have just a single individual manufacturing blades. So let’s take a look at the numbers when three individuals are working.
|Saw Grinding Service per part||Diamond Wheel Cost||Production Rate Per Day by a single individual||Work days in year||Total Amount of wheels needed||Amount of Workers|
Upfront Cost: $200 per wheel x total amount of wheels needed for the year = $88,000
Revenue Generated per day (original wheel): $20 x 40 blades = $800 x 220 days per year = $176,000
$176,000 x 3 employees = $528,000
Revenue Generated per day (NEW Aggressive wheel): $20 x 46 blades = $920 x 220 days per year = $202,400
$202,400 x 3 employees = $607,200
For 3 employees you would use 33 more wheels (11 x 3) = $6,600
Your Net Gain (if you had 3 employees grinding) would be 607,200 – 528,000 – 6,600 =