What exactly are profits? Where are they to be found? Do you have them? Every kitchen and bath dealer must answer those questions correctly to ensure successful continuing operations.
Profits are the result of well-managed businesses and well-managed projects. Profit, simply put, is the difference between the production cost and sales price of a project.
I do not believe that any of us work at operating or owning a company just because we like it. Certainly we must enjoy what we do for career, but if we don't make money at it, it's a hobby, not a living. Profits must be made in order for businesses to survive.
How much profit you make is largely up to you, not the buying public. The important thing to understand is that the more profit you make, the better you and your company will be able to serve your clients.
You may ask how profitability relates to serving clients. The fact is that a certain percentage of your profits must go back into the company so that your displays, trucks, office equipment and the like can be kept in good condition and updated regularly.
Smart buyers and sellers alike are conscious of profit margins. As buyers, we often feel that we don't want to pay more than we have to. I know when I buy something, I certainly want the best value I can get. I'm also acutely aware that I have to spend a certain amount to get the service I expect after the sale.
As sellers or managers, we must understand that without profit, we simply won't be able to meet the needs of our clients. Profits allow us to market ourselves and our services, as well as the products we sell. Profits allow us to provide the most efficient tools to manufacture, distribute or install the products we sell. With profits, we can purchase new computers, printers or any other equipment that will help our employees be more efficient and reduce the likelihood of costly mistakes.
Profits also allow us to hire the very best people who are qualified to do the job we hire them to do and be sure that our customers are getting what they expect and then some.
Planning for Profit
Whether you're an owner or manager of a large dealership or a one-person dealership, you should strive to bring up your profitability and use it as a benefit to your company. I don't think many of us would consider making a purchase from a company that was not doing well. If you knew that the purchase you were about to make would not be warrantied or serviced by the company because it was not going to be in business much longer, you probably would not buy the item. Indeed, we all expect whatever we buy today to be supported by the company that we bought it from. Well, our customers expect the same thing, and with low profits, you simply will not be able to service your clients properly.
The best thing to start with is to sit down and do a three-, five- and 10-year goal of where you want to be, both for your income and the profit of the business. Do you want to expand your showroom or feel that you need additional staff or sales help? Figure out what it will take to get you there. Talk with your accountant; share your ideas with your vendor of choice.
Did you know that many manufacturers are interested in being your partner? Did you know that many dealerships seldom pay for their displays? This is called a working relationship that can and surely will improve your margin of profit.
Sadly, most of our profits are left on the table. While I won't go into selling strategy, I will say that you and your company can't give top quality and service for bottom dollar selling. Service is an intangible until it is needed, and then it becomes a precious commodity that you have to offer.
Profits are lost when a business owner or salesperson doesn't understand their importance. You never want to lose a profitable project because of cost. But we all have the ability to provide what clients want with many options that will reduce the cost if, in fact, the price is too high. However, you need to distinguish a profitable job from a job that will cost you money to produce. Your most important responsibility to yourself, the company you work for and the customer is to maintain a profitable project.
The entire company needs to understand the importance of a
profitable job from the sales force and the order department, all
the way through to the delivery and installation of the
The Numbers Game
For as long as I can remember, the magic number for success has always been a 40% margin of profit. I know
of many dealers who work from a 30% to a 50% margin. All I will say is that you can make a lot more money with
a lot less headaches with a 40% profit margin than with a 30% margin. You may think there's no way you can make that kind of profit because no one in your market does. However, the truth is you have no way of knowing what other companies margins are.
Remember, you will never lose a project over a 3% difference in price. Try increasing your margin until you have a comfort level, and then add another 1% or 2%. Forget about the other companies in your town and try to really make some serious money.
One area where you can consider improving your margin is to get better prices from your suppliers. Ask them what you can do to get a 2% better price. Negotiate a deal with your vendors of choice for bigger discounts if you pay cash with the order or at least a 50% deposit. Also, consider joining a buying group, where you can earn rebates on the items you already purchase, or new items that you do not currently sell.
Whatever you do, understand that it is your customer that expects the service and the warranty after the sale. If you have the margins to support this, you can earn a customer for life. I have never had a customer say, "We bought from you because you were the most expensive," but I have had them say, "You were more expensive than the other people we talked to, but we felt more secure with you because of you reputation for great service before, during and after the sale."
Now that's something we should all strive for.