One of my favorite TV shows, The Profit, is hosted by Marcus Lemonis. This show is filled with drama…reality-show style, so most viewers probably watch it for the entertainment value. And entertain, it does. The show has plenty of intrigue and conflict as Marcus attempts to rescue failing businesses, one per episode. He applies his simple yet compelling Three-P philosophy. People, Process and Product. If two of the three are in good shape, and the deficiency is determined to be repairable, Marcus will invest hard cash, and temporarily take 100% control, in order to get the failing company back on the right track to success.
There is one element to this show that I appreciate and always learn from…the formal Marcus Lemonis insights placed strategically throughout each episode. They pertain to what is occurring in the show at the time they are stated, but they also deliver good wisdom. These Marcus Lemonis insights are from Marcus himself. He’s an expert in business. He has a very respectable background, education, and track-record, so I consider his quotes authoritative. The Marcus Lemonis insights are very meaningful and inspiring.
To provide you with some of these Marcus Lemonis insights, I’ll list some of his quotes and provide valuable information supporting each one. This blog post is the fourth of a series, where each one contains Marcus Lemonis insights from an individual episode. That way, you may watch it and put these Marcus Lemonis insights into their original context if you desire.
Marcus Lemonis insights
Season 2, Episode 8: Key West Key Lime Pie Company
“Of their total revenue, $1.4 million, 80% of the revenue comes from selling pies, which has fantastic margins. The retail store generates 20% of their total revenue, which has terrible margins. I can’t figure out why they think it’s important to dedicate more than 60% of their space to a part of the business that generates no revenue and no margin.”
This one of Marcus Lemonis insights is easy to understand. Retail space is rented at a cost per square foot. You would certainly want the largest percentage of that space to be dedicated to the products with the highest margins. Unless you sell super high volume, which would off-set this challenge and make it viable, it just doesn’t make sense. When low margin items are only 20% of revenue but occupy 60% of the space, change the plan!
Tami – loyal dedicated employee
“I’m very worried that somebody who seems to be a key employee is only making $300 a week. I need to really understand Tami’s role.”
Tami manages and handles just about every aspect of Key West Key Lime Pie Company and she does it with complete dedication. She is committed to the owner, Jim, and she loves the company. She believes it has great potential. And right she was. Now, Marcus Lemonis also sees the value in this award-winning, well positioned company. Marcus Lemonis insights really made a difference
“Tami really impressed me. For $300 a week, she’s doing everything.”
This breaks the rule of “you get what you pay for.” To find an employee like this would be very extraordinary. But you do need to pay for what you’re getting. She’s being short-changed.
At least the owner isn’t pocketing extra money. He truly wishes he could take better care of her. She must see that in him. Why else would she stick around and do all of that work for only $300 a week?
“Today I’m heading to Hogfish Bar where Tami works her second job. It is shocking to me that she’s able to hold all of her managerial duties at Key West Key Lime Company and do this.
Tami’s one of those amazing employees who goes above and beyond. Without Tami staying involved in this business and staying dedicated, we’d be in real trouble, and I have to figure out how to keep her motivated, not just financially, but emotionally.”
Tami works at Hogfish Bar two night a week, making better money than she makes at Key West Key Lime Co. When Marcus asks her the obvious question…”why don’t you just work here?”, she tells him how much she believes in Key West Ley Lime Co.
Sometimes, when a person feels they are part of something big, they work hard and stick around. It’s nice to see that Marcus sees that as well.
“I continue to be amazed by Tami’s work ethic. She’s making $300 a week and working two jobs, two kids at home with a third on the way, and she has to deal with Jim, which is no picnic. I need to make sure that she knows how much we appreciate her, and although a pat on the back is often good, giving somebody financial stability goes a lot further.”
Invest in good people
Marcus has invested $450,000 into this company, for 51% ownership. He shows how committed he is to Key West Key Lime Pie Company by providing financial stability to Tami, their most important and most dedicated employee. She’s pregnant, so he pays her $15,000 for her maternity time-off. Then, upon returning, $1000 per week will be her new salary. She truly deserves it!
Remove the losers
“The Big Pine location has two functioning separate businesses, a retail location, and the other is their shipping department. The retail location accounts for less than 10% of the total revenue, but after you add rent and labor and utilities, well that accounts for a lot of the loss.”
They have another location, in Big Pine, where they do very little retail and use the location for shipping. It appears the location is expensive, being a retail spot, so that would not be a cost effective place to do your shipping.
The retail space inside is small, unappealing, and full of low margin products. It doesn’t make sense to keep this location from any angle.
“Key West Key Lime Pie company does $1.4 million a year in sales, but it’s losing money operating multiple locations. But I know that if I can improve the product and consolidate all the operations to one location at Greene Street, we’ll stand to make a lot of money.”
Marcus is compiling the new plan of action…
“One of the biggest problems facing Key West Key Lime Pie Company is the losses that it’s incurring from their Big Pine retail location. I’ve asked Jim and Alison to meet me here so we can go over the numbers and the plan of action. Big Pin is doing $85,000 a year in sales, but the cost of operating the store is more than the gross profit that’s generated on that $85,000. Between rent, utilities, labor, etc., they’re losing $25,000 a year.”
Cutting loss improves profit
That’s too much loss. Any loss at all is enough to eliminate this location. But cutting $25,000 in losses a year means they will increase profits by $25,000 a year…nice!
They close the Big Pine store immediately and regroup…
Fix the product
“Key West Key Lime Pie Company has been using powdered mixes and pre-made crust in order to save money. I hired three of the best pastry chefs in the Key West area to help me come up with a new and better product.”
Location – location – location – Just a starting point
Their biggest selling point is the fact that they make the pies in Key West. Imagine how much more notoriety they will receive if they make their already award-winning pies from scratch?
Marcus gets resistance from the owners, since it will cost more to make the pies from scratch. But when you do the math and consider the margins, which are already at 80%, you realize that losing a little margin is a small price to greatly increase your volume.
“With the help of professional pastry chefs, we’ve come up with three original takes on the key lime pie. I’ve asked the employees to not only taste but give us feedback on the creative process while we develop new recipes.”
Qualitative market research
Marcus uses a focus group style taste test of the new pie prototype creations from three pastry chefs. They provide creative insight for what can be done with Key Lime pie.
After tasting and communicating what they like and don’t like, they all realized how much more can be accomplished with key lime pies.
“Not only are we changing the look and feel of the store, but we’re also changing the pie so that it’s all-natural and proprietary. I learned from the employees that Jim actually makes his own crust. I want to taste it.”
Finally, Marcus discovers that the owner makes his own crust. After trying it, Marcus decides to go with that one. It’s a hit! After making a better pie, using delicious crust made from scratch, and pie filling made from real, fresh, quality ingredients, they come up with the final formula. Marcus Lemonis insights come to the rescue.
“With the extra cost of labor and materials, the new pie crust is gonna cost $1.30, 32 cents more than the pre-made one, but our product will now be a real stand out. Because of that, I know we’ll sell more.”
It’s amazing that for only 32 cents more, per pie, they can deliver pies with crust made from scratch. Is 32 cents a very large percentage if $17.00? Not even worth calculating at this point. No brainer!
“Oftentimes in business, people think you can make money by raising prices. In this case, we’re gonna make money by raising volume. I’m actually gonna lower the price of the pie. Everybody in town sells their pie for $18.95 and everybody’s crust is pre-made. Ours is homemade, our ingredients are all-natural, and our pie is $16.95. I’m gonna beat’em on all fronts.”
The home-run hit
Call this the home-run hit. Not only will they have the best pies, which will increase volume greatly, but at a lower price. With the kind of margins they already enjoy, they can certainly afford to reduce the margin by a fraction in order to increase volume by leaps and bounds.
After they become the go-to place for Key lime pies, their competition may copy them, but they won’t have the established name brand in that market. That is priceless for sure!
Fix the location
“Now that we’ve liquidated the low-margin generic products and closed Big Pine, it’s time for me to renovate the Greene street location so that we have 100% of our focus on selling fresh, hand-made, all-natural pies.”
And Marcus Lemonis insights continues…
“I’m changing the layout to maximize the floor space for pie sales. I’m also bringing the kitchen up front so the consumers can see that it’s hand-made and all natural. By expanding the seating and adding a viewing station, I want consumers to be able to have a unique experience watching us make pies and understand what goes into each one. With the change in our product and the change in the process, Key West Key Lime Pie Company will start to increase revenues dramatically. With our margins being between 80% and 90%, we’re gonna start to see big money on the bottom line.”
Authentic and delicious
Marcus knows that people in Key West buy Key lime pie. Having a location that caters to that much better will work for sure. Now that the pies are made from scratch, and from fresh ingredients, they are much more authentic and delicious!
Now their pies are much better. In fact, they are the best in Key West! Marcus Lemonis insights made a huge difference!
“I brought in a team of workers to completely gut this place. This is one of our biggest renovations to date at just over $200,000. We’re renovating all the walls and floors at just over $38,000.”
An eye-popping look that fits the theme of Key West for sure. Spacious, airy, and the feel of the island…how inviting is that, for someone visiting Key West? And now with seating so you can enjoy your fresh pie, and watch the workers in the kitchen assembling those pies…Fun!
Marcus Lemonis insights:
“Since we now make everything from scratch, I want to showcase the kitchen with a sheet of glass. The kitchen has been totally renovated and updated with new equipment and new appliances at a cost of $95,000. I know these changes will draw in more customers, which ultimately means more dollars.”
“I’m thrilled with the renovations. I’ve spent over $200,000 to convert what used to be a key lime mini-mart to now a Key West one-of-a-kind destination. The cluttered retail space has been replaced with a comfortable seating area to accommodate more customers and more profits. I brought the pie-making process to the front of the store to put on a show for customers while they’re being made. No more Keebler crust and no more powdered mixes.
If we don’t make it in the store, we don’t sell it
The biggest change are our products. No longer do we sell any product made from other companies. Instead, we’ve added a new dessert station and a beverage bar, using only the freshest ingredients. If we don’t make it in the store, we don’t sell it.”
“I know that change is hard, but the new pie tastes great. Our all-natural ingredients are gonna translate into real revenue increases.”
The public response was everything an entrepreneur would hope for, and more. Inspiring Marcus Lemonis insights like this show what is possible if you put forth an effort in a smart, logical way. If the math adds up correctly, and the public loves your product and your brand, you win!
Thank you for reading:
Marcus Lemonis Insights in The Profit S2:8
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