Case Study: Optimizing Your Cost Structure to Increase Profits

August 23, 2023

The Situation:

After a record-breaking year of sales, a Tennessee-based company specializing in metal fabrication that improves operations and process improvement of large-scale warehouses, were simply not seeing their hard work translate into valuable profits.

The Challenge:

Despite having a record-breaking sales year, fixed overheads and owning their building, the client was not making a profit. After careful review of the client’s cost structure, Aprio’s Financial Assurance Services team noticed that while the client had built-in markups in their materials, subcontracting and rental equipment costs, they were not marking up their labor costs to ensure a profitable margin.

As a long-term Aprio client, our team knew that the largest part of their business was tied to their labor services, and with no built-in markups to labor costs, the client was basically breaking even. The client was billing labor at a rate that was leaving a significant amount of profit potential on the table. To build a reasonable profit, the client needed to consider a substantial increase on their labor costs per hour. Previous increases to labor costs by the client were minimal and only offset their expenses.

The Solution:

Based on Aprio’s thorough evaluation, the team went back to the drawing board and developed a new proprietary cost structure model that housed all the client’s financial information while allowing customized dashboard reports and various views of their financials. Since the model was designed to be intuitive, it allowed the client the opportunity to plug and play with different data point variables, such as rising costs and desired profits, then view these adjusted calculations accordingly, and in more meaningful ways. This proprietary tool allowed the client’s financial team to gain a broader understanding of how their cost structure and various aspects of their business affected revenue.

The Outcome: 

After the implementation of the new cost structure model developed and proposed by Aprio, and the institutional knowledge the client had on their customer base and market, they were able to increase the cost of their labor rate by at least 20% per hour and went from breaking even on their income statements to projections of over $1 million in net income.

Aprio’s development of a new cost structure has been a complete game-changer for the client to better forecast, increase profits and reinvest back into their company and employees.

Contact us to learn how Aprio’s Financial Assurance Services can enhance your cost structure to help you realize valuable savings.

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About the Author

Ryan Myers

Ryan increases bottom-line results for manufacturers by identifying available tax credits and opportunities for operational improvements that create efficiencies. Passionate about helping clients grow, he provides audit and financial reporting to help clients maximize the outcomes of growth initiatives, including new debt agreements, equity transactions, and new agreements with vendors and customers.