Expert Warns About Dangers of Discounting
Your October 2009 issue featured a “Market Pulse” section with the headline: “Dealers And Designers Address Discounting.” I was concerned to read that several dealers were discounting their projects to get jobs in this tough recession.
Professional crisis managers strongly advise against such a practice. For example, a 15% discount requires a 44% increase in revenue to cover the shortfall in gross profit dollars (unless, of course, there is a corresponding decrease in overhead expenses). Imagine having to work 44% harder today for the same amount of gross profit dollars – or commission!
And business experts agree that it’s virtually impossible to grow a business in a bad economy. Indeed, the goal in a recession is to have a positive cash flow, not necessarily to make a profit. Discounting can lead a company into a “doom loop” from which it may never recover. The proof is in the large number of dealers who didn’t charge enough for their overhead structure and disappeared from the landscape since this recession started in December, 2007.
The rule among experts is: Don’t take a job in bad times that you would not take in good times. The kitchen/bath owner’s challenge is twofold: (1) budget your business to its absolute core and (2) market your firm so it is perceived as a much better value. Both of these require advanced business skills, strategies and techniques that are largely lacking in an industry dominated by a focus on design and order-taking. And, all too frequently, dealers and designers are too proud to ask for professional assistance until it’s too late.
As business professor Jim Collins points out in his book, How The Mighty Fall, the seeds of decline are prevalent when companies are successful. Management just can’t detect the flaws because of sheer arrogance. My experience in analyzing scores of kitchen/bath dealer financial statements every year supports Collins’ conclusion. I discover a lot of unsustainable business models that are covered up by the blush of success and customer deposits that generate a positive cash flow. It’s in this kind of economy that everyone should plainly see the Achilles heel of this industry.
To develop the requisite business management expertise, dealers and designers would do well to attend seminars and pursue educational opportunities that help them to hone these important skills. To save their dealer network, and make a positive contribution to the industry, manufacturers and vendors would do well to sponsor such programs and educational efforts by underwriting costs to help make these affordable for kitchen and bath dealers and designers.
Unfortunately, many vendors are pouring too many of their available dollars behind promotional incentives to spur sales when business education and business coaching at the dealer/designer level would provide better solutions for both the short and long term. I consider them the two key cornerstones to the recovery of the kitchen and bath industry.
Ken Peterson, CKD
SEN Design Group
Chapel Hill, NC
Designer Seeks Social Networking Ideas
Your editorial about social networking struck a chord for me. I recently started looking at what Facebook can do for my marketing efforts, and I am still struggling to figure out how to use social networking effectively. I am hoping to learn from others’ experiences.
I also signed up for your new online forum, Designer Dialogue. While I value face-to-face networking opportunities when I can get them, tighter budgets and busier work days have cut down on my ability to travel this year. That has made it more difficult to network in person, and as a “one-man band,” I have felt a bit cut off from everyone this year.