How to Run a Unprofitable Business: Jimmy Johns

Mar 26 2008

How to Run a Unprofitable Business: Jimmy Johns

Published by UltraYeah at 2:28 pm under Business

Jimmy Johns

I went to Jimmy Johns sandwich shop for lunch, and saw 11 people working there. It would be reasonable if there were customers, but I was the only one there. I bet they have to pay 9 dollars per person, so $9 x 11ppl = 99 dollars per hour for just Direct Labor. How many sandwiches do you have to sell to even pay for direct labor? They charge $5.25 a sandwich, which would mean they have to sell 19 sandwiches a hour or one per 3 minutes. Even if they break even with Direct Labor costs, they still have Direct Material, Overhead and Fixed/Administrative Costs to deal with.

I don’t know how much Direct Material they need to buy to make the sandwiches; I would assume 20% of the price, so 1.05 lost per sandwich. For Overhead costs they have the sandwich dressing, wrappers, bags and napkins, all of which aren’t much individually, but when combined can cost a fortune. Direct Labor, Direct Material, and Overhead constitutes the product cost; the $5.25 per sandwich is set because management tried their best include all those costs in the product. But with the massive surplus of Direct Labor Costs- they had 11 people working– they need to either cut labor or increase their price to make a profit.

Not only do the profits from their sandwiches have to pay for Direct Labor, Materials and Overhead, but also fixed expenses, which could be ulities, insurance and rent. With all of those elements added together, it’s difficult to have too much of an expense and still make profit; in this case they had too much Direct Labor. Because the product price can’t fluctuates daily, but expenses can, a efficient accounting system needs to be setup to avoid problems like this. When I do my karaoke bar I’m going to make sure I have a dynamic Activity Based Cost system to account for the changes in pricing.

I’m not sure why they had 11 people working at one time, maybe it was for training. But I’m sure that it’ll be really hard to pull a profit today.

Yeah.