'Paying Yourself First' is a Sound Business Strategy

It's so easy to go down the wrong road in this business – so easy to be sidetracked that it often takes three to four years before a kitchen and bath dealer may fully realize a wrong turn has been taken. And then he may be trapped for some time – maybe several years – before he can change direction and be extricated. In the meantime, he, his staff, and his family suffer with the consequences.

Has this ever happened to you?

Let's say you've been selling upscale kitchens and baths for 10 years and you've decided to start your own firm. At $650,000 in annual sales, you were grossing the industry norm in commissions of 10% ­– or $65,000 a year. Now, as the owner of a three-year-old business, you're producing $750,000 in revenue and taking home a salary of $75,000. Plus, the company is leasing you a new SUV.

Financially, life is good. However, you're working 50-60 hours per week, and not spending enough time with your family. In addition, you just lost a couple of sales because it took too long to get back to the prospects with a plan and estimate. So you decide to hire a salesperson, someone who's experienced – preferably a CKD – to handle all the extra leads.

It takes but four to five months before you realize that this salesperson isn't as experienced as you thought. Not only are some sales being lost, but there are problems with installations. You end up helping to fix those problems to save your firm's reputation. Nevertheless, you enjoy having another professional on staff to talk with and share the load. And with some direction and coaching, he should be able to produce, in due time, what you do. So you lower your salary to $65,000 to help with the cash flow and end up working 60 to 65 hours per week to "grow the business" and manage operations.

This is, after all, what being an owner and manager is all about, right?

The answer may be yes … if there's a business plan and budget in support of that direction. And if the owner is mentally ready, and equipped with the skills, to be an effective sales manager.

The truth, however, is that for 90% of the business owners with whom I consult, that is not the case. I'm involved because their businesses are floundering, salespeople are underachieving, and they're working too hard for the money they're making. For these people, our industry isn't as much fun anymore.

A SOUND APPROACH

One good way to avoid the wrong turn in the road is to be guided by a simple principle: Pay yourself first. After all, you are the reason the business exists. It's your design expertise and showroom that draws new clients. It's your energy and business integrity that has built the firm's reputation. It's your talent and character that represent the greatest value to your clients. Why not leverage that position into an organization that (1) supports you (rather than vice versa), (2) pays you a six-figure income, and (3) surrounds you with valuable perks?

This business strategy acknowledges that, at present, you are not the world's greatest sales manager. It would eliminate the underachieving salesperson and replace him with a competent support staff: design assistant, project manager and office manager. This would enable you to spend more time doing what you do best: designing (conceptually), consulting, selling and marketing.

This business strategy would also equip you with a marketing system (see the May 2002 column, "Interactive Project Budgeting Builds Profit") that enables you to generate an accurate job estimate within 15 to 20 minutes. It's a marketing technique that's effective enough for prospects to feel comfortable in giving you $1,500 retainers to get started. And it's effective enough for you to handle many more clients in a year, doubling your sales volume to $1.5 million – or more.

Rather than adding salespeople to handle the extra revenue and paying out commissions, you simply add more design assistants at a fraction of the cost. As the designer/owner, you pocket the difference in salary, net profit and critical perks – like disability insurance – that can give you a 25-30% return on overall revenue. And your support staff is happy because they're earning market-rate salaries and are enrolled in health insurance and retirement programs. In addition, they enjoy working as a team in a dynamic, creative, and growing business where they can see their individual efforts materialize into beautiful kitchens and baths.

For Raffael Brugnoni, CKD, of St. Clair Shores, MI, paying himself first has made a major difference. He says, "For years, I struggled with underachieving salespeople who created problems in the field that I had to fix to protect my firm's reputation."

Dealers such as Brugnoni have turned to business support groups that enable them to obtain peer feedback and advice. These are generally brutally honest when it comes to discussing critical issues with business owners, whereas employees may feel restrained to speak their mind. Peer group members are in a position to remind individual owners to pay themselves first. And they help owners avoid wrong turns that can set a company back in growth, profit and aggravation.

Dan Luck of Madison, WI operates a successful business with annual revenues of $5 million. Yet, as profitable as his operation is, Luck is a strong believer in business support groups. He says, "I don't have to reinvent the wheel. I want to be associated with other successful dealers so I can sharpen my saw. In today's environment, things move at such a rapid pace that you can't afford to sit still. I am always open to learning something new. And what better way to do that than to attend good business improvement programs and be associated with other professionals who have similar mindsets?"

Good business support groups will generally be divided into small roundtables where there is an intimacy and trust developed over time – so much so, that the roundtable members share financial statements. This action serves several key purposes. First, the owners gain a much better understanding of reading financial statements. Second, they can better advise colleagues on their issues because roundtable members can take into account each firm's financial standing. And third, they can learn new strategies, systems and techniques that others have used successfully to build their firm's profitability – including the notion of paying yourself first.

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