Monday, February 21, 2011

$100 per pound for snow -- get it while it's cold!

Glad that's not my piano!
Sometimes I think I eat, sleep, and breathe finance. It is my area of expertise after all! Some people might believe finance guys are all boring. But with me, I think you'll learn that's not the case! I like to have fun and keep things engaging for my students.

And with that in mind, I thought I'd share the lighter side of finance here on the Post University blog. I hope my posts are amusing, but above all, educational. So here is my first story from the front line. I must preface by saying this is not a true story, but it is based in finance fact. Enjoy!

--The Finance Guy


My boss the CEO just came to me and asked for ideas to help increase profits and reduce costs. I looked out my window and was pondering this situation when the thought struck me. Let's sell snow.

I quickly went on the Internet and Googled "selling snow." I found that this is a wide open market. No one is selling snow. (Note to self: Who needs that marketing research department? This is easy.)

Let's see now. The best way to keep costs in line is to have people come and get the snow. No transportation costs, no packaging costs, and no need to hire anyone to shovel the snow. This is an ingenious idea because I would not only create a new highly profitable revenue stream, but I would reduce the costs of snow removal! BONUS!

Now, how do I price this stuff? It usually takes our plow person about 10 hours to clear the lot, and we pay him $50 per hour. So that is $500. We also need to consider the cost of managing his time, accounts payable transactions, insurance, lights, and admin. So we'll say $1,000 every times it snows.

On average, the snow weighs about 1,000 pounds, so our cost basis is $1 per pound. If I sell it for $2 per pound, I will generate 100 percent profit and $1,000 in revenue every time it snows.

But that is not enough to get the CEO's attention. I've got it! We'll sell this as an upscale product, charge $100 per pound, maybe get one of the Kardashians to endorse the product, and viola, $100,000 a snow storm at sweet profit margins. The boss will be pleased.

The icing on this cake is that I can also propose that we eliminate the marketing function and move that over to finance. Those people spend too much and I just proved the job is not that hard. Well, fire up Excel and create that proforma. Just wait for the cash to roll in!