In times of keen competition and low profit margins, loss control may contribute more to profits than an organization’s best salesperson. All accidents have hidden costs that most businesses don’t realize. These hidden costs can be four to ten times greater than the dollars paid out by an insurance company. What is more surprising is the amount of product or service a business must sell to make up for lost profits from these hidden costs. It is necessary for a company to sell an additional $20,000 in products or services to pay the costs of $10,000 in annual uninsured (hidden) losses from injury, illness, damage or theft, assuming an average sales profit margin of 5%. The amount of sales required to pay for the losses will vary with the profit margin.
Loss Control- A Profit Producer
For most businesses, profit is the number one goal of the organization.
It is essential for the continued growth and health of the business.
Unfortunately, a frequently overlooked profit producer is an effective loss control or safety program.
The cost of work accidents, and injuries is one of the controllable costs of producing a product or service and a factor in determining profit. When competition is fierce and profit and profit margins are squeezed, an improved safety record with reduced accident and injury costs may contribute more to the profit than the best sales person.
Using the following chart, determine the dollar sales required to pay for different amounts of accident costs at varying profit margins. (Example: If your profit margin is 5%, an additional $100,000 of sales is required to offset every $5,000 of accident costs.
Hidden Costs of Accidents
- Deductibles
- Loss of Employee Services
- Replacement of Work Flow
- Disruption of Workers
- Customer Dissatisfaction
- Uninsured Loss
- Minor Thefts
- Damaged Property
- Down Time of Equipment
- Disruption of Cash Flow
Loss control programs can improve worker performance as well as reduce the costs of accidents. Contact your Insurance Representative or Safety Consultant for free literature and services you may obtain from Sentry Insurance to help control your costs of accidents.
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Sales Dollars Required to Pay Direct & Indirect Costs of Accidents |
|
Accident Cost
$1,000
5,000
10,000
25,000
100,000 |
Profit Margin
1%
$100,000
500,000
1,000,000
2,500,000
10,000,000 |
2%
$50,000
250,000
500,000
1,250,000
5,000,000 |
3%
33,000
167,000
333,000
833,000
3,333,000 |
4%
25,000
125,000
250,000
625,000
2,500,000 |
5%
20,000
100,000
200,000
500,000
2,000,000 | |
Source:Sentry Insurance