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Every year, a number of people who are starting up kitchen and bath showrooms inquire about membership in our buying group. As part of the interview process, one of the questions I ask is: How will you be staffing your new operation?
Invariably, the majority of aspiring new owners expect to design and sell kitchens themselves but are also planning to hire “designers.” So I ask whether these designers will also be selling kitchens, and the answer is usually “yes.”
More questioning typically reveals that the owner and his or her designers will all be responsible for: developing the leads, designing the projects, estimating the projects, closing the sales, ordering the materials, scheduling the jobs, supervising the installations and collecting the final checks. That’s a lot of hats to wear.
Unfortunately, these startups are in such a rush to make sales, very little thought has been given to staff productivity, the quality of customer service and the bottom line under this type of organizational structure. A lack of thorough business planning is the number one reason why most new operations fail, struggle for many years or never realize their full profit potential.
These new owners just assumed that adding sales/designers was the proper course of action to roll out an operation and make more profit. Regardless of what their prior industry experience may have been, it isn’t for most firms… until they reach a certain stage of development. Indeed, I find a fairly large percentage of kitchen firm owners discover this for themselves when attending the “Managing For Maximum Profit” seminar, co-produced by Kitchen & Bath Design News. The subject is addressed when presenting the most suitable business model to match up with an owner’s immediate financial goals.
Lee Greenlund, of Santa Rosa, CA, is one example of someone who moved too fast in terms of expanding staff. He explains, “The designers I hired didn’t produce what they should have, and the overhead burden almost put me out of business despite my not taking much of a salary.”
Computer-Aided Design (CAD) is an example of a “hard technology” that has made sales/designers in this industry become more efficient and productive. “Soft technologies” – where there is a division of labor among staff personnel and a series of management systems that streamline productivity – is another example of how firms can be more efficient by working smarter.
Look at it this way: The more you sell, the greater the risk of error. After all, the biggest expense on any Dealer Income Statement is the Cost of Goods Sold. This is the expense that must be managed most closely. So, if sales/designers are made responsible for wearing all of these hats in the development of a client’s kitchen, one of two things is going to happen: (1) they are going to be limited in the volume of sales that can be produced profitably or (2) they are going to work harder to generate the sales volume but make a lot of errors along the way, reducing gross profit margins and client satisfaction. As an owner of a business whose reputation, growth and profitability are a direct function of referrals, which scenario would you prefer?
If a startup owner’s best skills are in designing/selling kitchens, his or her best interests would be served by developing a support staff before adding any additional sales/designers. Here is a brief overview of the basic job descriptions in a “studio” business model and the order in which staff should be added in most cases during the first one to three years:
- Design Assistant – greets visitors, does CAD drawings, estimates cabinetry, assists in materials selections, assists in ordering materials, and coordinates deliveries
- Office Manager (possibly part-time to start with) – answers phones, orders materials, does full charge bookkeeping, reconciles bank statements, serves as liaison with CPA and handles all records
- Project Manager (consider adding when income from substantially completed jobs exceeds $750,000) – does “technical check” of plans and cabinet orders, generates purchase orders, schedules jobs, performs pre-job conferences with subcontractors, assists with deliveries and manages installations to completion.
Now, in practice, many owners have performed most of these duties in some form or other during the start-up phase. Imagine how much more time the owner will gain in shedding these responsibilities to be able to concentrate on just designing and selling kitchens.
The same is true for sales/designers. So why saddle them with most of these same ancillary activities that hinder their sales production? Indeed, from a customer service perspective, clients will receive superior service when their sales/designer can spend more time with them during the needs analysis, design development and consulting stage. They will also receive superior service when they have a “go to” person – the project manager – who has the time, skills and subs at his or her disposal to fast track the smooth installation of the new kitchen.
Companies with this kind of organizational structure have a distinct competitive advantage in customer service – something that should be marketed effectively. And, experience has demonstrated that clients are willing to pay a higher price to get this quality of service, provided there is proof of value.
The best time to shift to a “showroom” business model, where the owner serves as a sales manager to a fleet of sales designers, is when this support team has matured and there are sophisticated management systems in place to effectively communicate the level of detail in these projects between departments. The division of labor and management systems mesh together to preserve the gross margins planned into each project.
As a result, clients receive good value through attentive, largely mistake-free service. Sales/designers are happier because they can sell more and make more income. The support team is happier because they have vital roles in a dynamic, growing business. And owners are happier because their net profits are much greater, their reputation for producing quality work is enhanced and the future looks
Ken Peterson is president of the Chapel Hill, NC-based SEN Design Group and an instructor for the “Managing for Maximum Profit” seminar, co-sponsored by KBDN. Peterson can be reached at 1-800-991-1711 or firstname.lastname@example.org.
Read past columns on Bettering Your Bottom Line, and send us your comments about this story and others by logging onto Kitchen & Bath Design News’ Website at www.kitchenbathdesign.com.