Apr 24 2008
Employees make/break Businesses v. Amy’s Ice Creams
Tonight, I went to Amy’s Ice Cream and wasn’t too pleased with the service. The line wasn’t long when I got there, but it took at least 15 minutes to get my ice cream. I really don’t get how tough serving ice cream and shakes can be. But apparently the three employees had a hard time.
I was with two other people and we were going to order together. One person served all three of us, rather than all three helping. I don’t get the logic here, but one of the employees refused to serve me because there was somebody else helping my two friends. That employee also took the time to chat with a coworker, after turning me down. My first impression of Amy’s Ice Cream is that it has a really relaxed atmosphere. But that guy really ruined it for me, and made Amy’s Ice Cream seem like a haven where slouches can work. This is a perfect example of how a successful business gets bad publicity.
Let’s talk about making money.
Anyways even with bad employees, Amy’s Ice Cream is totally a cash cow. Their return of investment is so high, because the majority of their costs are fixed; therefore, they have a higher operating leverage, so any increase of sales will subsequently increase their net income.
The ice cream comes in three different sizes: Tiny, Small, and Large. Don’t be fooled into thinking the sizes correlate with the price: The tiny size is the cheapest and cost around $3.50. Each topping cost almost a dollar extra. They’re definitely marking it up the price by some huge percentages.
Here is what I predict Amy’s Ice cream income statement to look like:
| Employee Salary | |||
| Days | Hours | Wages | |
| 30 | 10 | 7 | |
| Days | Sold Per Day | ||
| Tiny | 30 | 100 | 3.5 |
| Small | 30 | 80 | 4.5 |
| Large | 30 | 60 | 5.5 |
| Tiny | 30 | 100 | 1.166667 |
| Small | 30 | 70 | 1.5 |
| Large | 30 | 50 | 1.833333 |
| Revenue | |||
| Tiny | 10500 | ||
| Small | 10800 | ||
| Large | 9900 | ||
| Total | 31200 | ||
| Variable Expense | |||
| Tiny | 3500 | ||
| Small | 3150 | ||
| Large | 2750 | ||
| Total | 9400 | ||
| Contribution Margin | 21800 | ||
| Fixed Costs | |||
| Salaries | 6300 | ||
| Utilities | 1000 | ||
| Lease | 10000 | ||
| Insurance | 1000 | ||
| Total | 18300 | ||
| Net | 3500 | ||
| Operating Leverage | 6.228571 | ||
Look at the operating leverage. Any change in sales will increase income 6.2 times! I could be wrong about the variable expenses, because I assumed they used 300% markup. It possibility could be even more, because I ice cream is inexpensive to make.
In conclusion, Amy’s Ice cream is a big cash cow for Amy, but it could be ruined by bad employees. After all, part of Amy’s Ice Cream is based of experience of their service, why else could they charge ridiculously high markups? Do ya’ll have any stories about receiving bad service?
Yeah.
