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Scan for outside changes — rates, laws, suppliers, competitors, customers and technology — turn each into its effect on monthly profit, rank them, and absorb the largest with a price change or a saving made on time.
Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.
You will work out what a rate rise costs a month, turn three outside changes into dollars, find the price rise that covers a wage increase, choose which change to act on first, write the rate-rise rule, fill in a landscaper's scan, and find the price rise that absorbs two changes.
You can read local market evidence and choose where to compete. Some of what moves a business's profit, though, comes from outside it and outside its market: the cost of borrowing, the laws on wages and trading, suppliers' prices, a new competitor, a shift in what customers want. None of it can be controlled, but all of it can be seen coming and turned into a number.
| Term | What it means |
|---|---|
| External factor | A change outside the business that affects its sales or costs. |
| Environmental scan | A regular look at the changes coming under a few fixed headings. |
| Variable rate | An interest rate that moves with a benchmark, such as the prime rate. |
| Percentage point | A change in a rate measured in its own units: from 8 percent to 10 percent is a rise of 2 points. |
| Minimum wage | The lowest hourly pay the law allows; set federally and often higher by state or city. |
| Absorb | Cover a rise in costs, usually with a price change or a saving elsewhere. |
Neighborhood Kitchen reads three changes coming next year:
$$\text{effect on monthly profit} = \text{quantity affected} \times \text{size of the change}$$
Together they take 1,900 dollars a month from profit. The wage rise is the largest, and it is certain and dated; the competitor is the smallest and the least certain. The owner acts first on the wage rise, pricing it into the menu on the day the law changes. Every figure here rests on stated assumptions about volume, price and cost. It says what follows if those assumptions hold; it is not a prediction, and it is not advice about what any real business should do.
Another way: table
Neighborhood Kitchen's outside changes.
| Change | Monthly effect |
|---|---|
| Minimum wage +2 an hour | −1,200 |
| Food +4 percent | −400 |
| New taco truck | −300 |
| Total | −1,900 |
Another way: steps
Scan under fixed headings. A short list keeps the scan from missing whole areas: the economy (are customers spending more or less?), interest rates (what does the business owe at a variable rate?), laws and rules (wages, licensing, health, tax), suppliers (prices, reliability), competitors (who is opening or closing nearby?), customers (what are they asking for, and what have they stopped buying?), and technology (what could make the work cheaper, or make the business's offer obsolete?). Business textbooks sometimes call this a PESTLE scan, after the initials of political, economic, social, technological, legal and environmental factors.
Find the quantity and the size. A wage rise touches the hours paid at that wage; a supplier's rise touches what is bought from that supplier; a rate rise touches the balance owed at a variable rate.
Multiply and rank. The effect on monthly profit puts different changes on one footing, as the risk map did.
Check each figure by sense. A 4 percent rise on a 10,000-dollar bill is 400, not 4,000; a 2-point rate rise on 12,000 owed is 240 a year, 20 a month.
Many small-business lines of credit and some loans charge a variable rate: a benchmark, usually the prime rate, plus a fixed margin. When the Federal Reserve raises its target rate, banks raise the prime rate, and the business's interest rises with it, often within a month. A fixed-rate loan does not change, which is one reason owners choose one.
The effect is simple to work: the balance owed at the variable rate, times the rise in percentage points, divided by a hundred, gives the extra interest a year; divide by twelve for a month. A business owing 30,000 on a line of credit feels a 2-point rise as 50 dollars a month. Higher rates also cool customers' spending on large purchases, which a business selling kitchens or cars feels far more than one selling coffee.
The federal minimum wage has been 7.25 dollars an hour since 2009, but many states and cities set higher floors, and some raise them every year, often in line with inflation. A business that pays some staff at or near the floor should know the dates and amounts of the next rises where it operates; the state labor department publishes them. A wage rise at the floor often pushes up the pay of staff just above it too, since experienced staff expect to stay ahead of new hires.
Other rules change as well: licensing fees, health and safety standards, packaging rules, sales tax rates. Each is scanned the same way: what does it touch, and by how much a month?
The hardest changes to put a number on are the ones in the market itself. A new competitor might take 50 lunches or 150; a shift in what customers want might take a decade or a season. The method is the same as for any uncertain figure: a sensible estimate, a low and a high scenario, and a note of what evidence would confirm it. The local market evidence from earlier lessons — footfall, rivals' prices, what customers ask for — is where the estimate comes from.
Technology cuts both ways. A booking app or a cheaper machine can lower costs; an online service can take customers who used to come in person. The scan asks both questions.
Most outside changes are absorbed in one of three ways. The cost is passed on in a price rise, spread over the units sold; the cost is offset by a saving elsewhere; or the business changes what it does, dropping a product that the change has made unprofitable or adding one the change has made possible. For a certain, dated change such as a minimum wage rise, the price change is best made on the same day, so the business never runs a month at lower profit. For an uncertain change such as a new competitor, it is often better to wait for the evidence before acting.
Not every outside change is a threat. A rival closing down, a new office building opening down the street, a supplier cutting prices, a change in the law that allows a new service, a trend that brings customers the business already serves: each adds to monthly profit in the same way the threats take from it, and each can be sized with the same arithmetic.
The scan therefore asks two questions under every heading: what could take from profit, and what could add to it? A café that finds a new apartment block of 300 homes opening two streets away can estimate how many extra coffees a week that might bring, just as it estimates what a new rival might take. Opportunities often need a response too — longer opening hours, a new product, more stock — and the earlier they are seen, the more of them the business captures before a competitor does.
A useful habit is to keep the scan as a single page with the headings down the side, updated each quarter: what changed, what it is worth a month, whether it is certain or uncertain, and what the business will do about it. Kept this way, the scan becomes a record of how well the owner reads the world, and it improves each year.
A pizzeria in Seattle, where the city sets its own minimum wage above the state's and raises it each January in line with inflation, does its scan every October when the next year's rate is announced. One year the rate rose by about 75 cents an hour. The pizzeria paid about 1,600 hours a month at or near the minimum, so the change added about 1,200 dollars a month in wages, before the payroll taxes on them.
The same scan found its flour and cheese supplier signaling a 5 percent rise on about 9,000 dollars of ingredients a month: 450 dollars. And a national chain was opening a delivery-only kitchen two miles away, which the owner guessed might take 100 delivery orders a month at 8 dollars of contribution: 800, but uncertain.
The owner absorbed the two certain changes, about 1,650 dollars a month, with a price rise of about 30 cents a pizza on roughly 5,500 pizzas a month, effective January 1. For the uncertain one, the owner set a review point: if delivery orders fell by more than 60 a month for two months running, revisit the delivery fee and the menu. They fell by about 40, and the pizzeria left its delivery prices as they were.
Minimum wage schedules come from the US Department of Labor and state labor departments; the prime rate is published daily; suppliers usually announce price changes to their customers ahead of time. Owners who keep a short list of these sources can do the scan in an hour.
Outside changes cannot be planned for. Most are announced in advance, and all can be turned into a monthly figure.
A percentage rise and a percentage-point rise are the same. A rate going from 8 to 10 percent rises 2 points, which is a quarter more.
Only the big economy matters. A local wage law or a new rival next door often matters more.
Every cost rise must be passed on in full at once. Some are absorbed by savings, and uncertain ones can wait for evidence.
The scan is done once. Repeat it each quarter.
An uncertain change should be ignored until it is certain. Give it a low and a high estimate and a review point now, so the response is ready when the evidence arrives.
Read what is owed at a variable rate.
$12000 \text{ on a line of credit}$
Its rate follows prime.
Read the rise.
$2 \text{ percentage points}$
After a Federal Reserve increase.
Work the extra interest a year.
$12000 \times 2 \div 100 = 240$
Balance times the rise.
Divide by twelve.
$240 \div 12 = 20$
Dollars a month.
Decide the response.
$\text{pay the line down from savings}$
Small, so no price change.
Work the wage rise.
$600 \times 2 = 1200$
Hours at the minimum times the rise.
Work the food rise.
$10000 \times 4 \div 100 = 400$
Four percent of the food bill.
Work the new competitor.
$50 \times 6 = 300$
Lunches lost times contribution.
Add the three.
$1200 + 400 + 300 = 1900$
A month.
Rank the three.
$1200 > 400 > 300$
The wage rise first.
Price in the wage rise.
$1200 \div 4000 = 0.30$
Thirty cents a meal on 4,000 meals.
Work the city's wage rise.
$800 \times 1.50 = 1200$
Crew hours times the rise.
Work the gas rise.
$300 \times 0.40 = 120$
Gallons times the rise.
Work the supplies rise.
$1500 \times 5 \div 100 = 75$
Five percent on cleaning supplies.
Add the three.
$1200 + 120 + 75 = 1395$
Taken from monthly profit.
Read the cleans a month.
$450$
The units to spread it over.
Find the price rise a clean.
$1395 \div 450 = 3.10$
Dollars a clean.
Round and date it.
$3.10 \to 3.25$
From the day the wage changes.
Work the clay rise.
$2000 \times 6 \div 100 = 120$
Six percent on 2,000 a month.
Work the electricity rise.
$400 \times 10 \div 100 = 40$
Ten percent on the kiln's power.
Find the price rise a mug.
Northside Repairs owes $24000$ dollars on a line of credit whose rate follows the prime rate. The Federal Reserve raises rates and the line's rate goes up by $1$ percentage points. Complete the sentence.
The extra interest is y dollars a year, or m dollars a month.
Complete the worked solution: The state minimum wage rises by $2$ dollars an hour. Neighborhood Kitchen pays $800$ hours a month at the minimum and sells $5000$ meals a month. Find the price rise per meal that would cover the extra wages.
Multiply the hours by the wage rise.
$800 \times 2 =$ c
Extra wages a month.
Divide the extra wages by the meals.
$(\text{extra wages}) \div 5000 =$ r
Dollars a meal.
Round up to a price customers see.
$\text{to the next nickel or dime}$
Prices move in round steps.
Check the rise against the menu.
$\text{a small share of a meal's price}$
Customers rarely notice a few cents.
Plan it for the date the law changes.
$\text{new prices on the same day}$
No month of lost profit.
Neighborhood Kitchen reads three changes coming next year. The state minimum wage rises by $1$ dollars an hour, and the kitchen pays $500$ hours a month at the minimum. Its food supplier raises prices by $3$ percent on the $10{,}000$ dollars of food it buys a month. A new taco truck parks nearby and is expected to take $80$ lunches a month, each contributing $6$ dollars. Fill in how much each change takes from monthly profit, in dollars.
| Taken from monthly profit, dollars | |
|---|---|
| Minimum wage rise | |
| Supplier price rise | |
| New competitor |
Neighborhood Kitchen reads three changes coming next year. The state minimum wage rises by $2$ dollars an hour, and the kitchen pays $900$ hours a month at the minimum. Its food supplier raises prices by $6$ percent on the $10{,}000$ dollars of food it buys a month. A new taco truck parks nearby and is expected to take $80$ lunches a month, each contributing $6$ dollars. The wage rise takes $1800$ dollars a month, the supplier's rise $600$ and the competitor $480$. Which should the owner act on first?
A business owes $b$ dollars on a line of credit, and its rate rises by $r$ percentage points. Write the extra interest it pays each month, $m$.
Answer:
A landscaping company in Phoenix scans the year ahead. Gas prices are expected to rise by $4$ tenths of a dollar a gallon on the $400$ gallons it buys a month. The city's minimum wage rises by $2$ dollars an hour on $500$ crew hours a month. It does $400$ yard visits a month. Fill in the working sheet.
| Amount | |
|---|---|
| Gas rise, dollars a month | |
| Wage rise, dollars a month | |
| Total taken from profit | |
| Price rise a visit to absorb it |
Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.
Neighborhood Kitchen faces two changes next year: a minimum wage rise of $3$ dollars an hour on $800$ hours a month, and a $4$ percent rise on its $10{,}000$ dollars of food a month. It sells $200$ catering trays a month. By how many dollars must the price of a tray rise to absorb both changes?
Answer:
You can turn changes outside the business into figures and respond before they bite. Tell someone the difference between a percentage rise and a percentage-point rise. Next: setting a goal that can be measured.
17. Your turn: Maya's studio, step 3
$(120 + 40) \div 320 = 0.50$
On 320 mugs a month.