Mechanics of Profits

[B Carter]

I get daily emails and calls from people asking me for help on increasing profits. While I'm flattered that they are asking for my help, two points keep surfacing. First, there is no magic bullet. If I had an easy answer I'd be selling it, not giving it away. Second when I ask people about the records they keep,either online or in person, the silence is deafening. So before you can understand where you're going or how you're going to get there, you have to know where you've been. You've got to measure results and you need the information to support those answers. I believe that there probably a lot more unsuccessful owners that don't make much money, not because they have overcuts on their mats or their hinges fail, but from the decisions they make being flawed.You can't make good decisions without good information and you can't make great decisions without great information. Aside from bad locations, bad product mix, bad salesmanship and other contributors, bad information is easily the biggest culprit. It affects inventories, pricing, cash flow-everything. Now if a little more work isn't for you, this is a great time to push the delete key. If not, let's start the first lesson with Daily Sales.We record our Daily Sales by each department, comparing those against the same day last year. We add those sales figure to get a Month to Date total comparing it to last year, same period. We total each department the same way. Pretty simple, we all do that,right? So you're ahead of last year or worse, behind? Where? If you have good records, it will probably point it out. So you're sales are up overall, but your print sales are down? What do you do? Well, if you have good records look back. Is this a trend month to month, is your year ahead in this department. Without great records, you're guessing. If you don't have an electronic register with departments, come on it's the year 2000. Ditto for computerized records. We set our sales into deaprtments so we can monitor the progress in areas important to us,so should you. If you only do framing, break it down to wood, metal, conservation, needleart for example. Make the decision to create some level of monitoring those areas that are measureable.. Once you have the daily down, then the Monthly becomes easy, then the Yearly. Then you compare year to year, dept by dept and you get a clearer picture. We take it a step further. We do costings in each department of custom framing by vendor, item and salesperson. It points out strengths and weaknesses,as well. That will be for the next installment. It may take several installments to start to see how these tie together to help you understand where your profit potentials come from and I promise it takes only 10-15 minutes a day. Start right away with recording daily sales. The rest is normal progression. But that's all for today and you didn't pay a dime for it or leave home.
Bob Carter
[This message has been edited by B Carter (edited November 12, 2000).]

[This message has been edited by B Carter (edited November 12, 2000).]

[artist]

Bob: thanks for the input. You answered one of the questions I didn't know to ask. Sounds like you could put your ideas in a saleable package. I think you might hane something here.

[cfkane]

Bob:

Where did you find that magic bullet? And why are you not selling it???

Have been collecting your posts on profits, and believe me, it makes up a tidy little tome.

Thanks for all your postings. they have helped greatly.

[Bob Carter]

While I don't have any magic bullet, I do have lots of buckshot that I've pulled out my backside from mistakes along the way.Any good operator will tell you any success they have is accumulated from a lot of little successes. If were as easy as a magic bullet, anybody could do it. But it comes from perserverance, application and lot of luck. Guys like Jay and I can help with the application, but you're responsible for the perserverance, and the luck-Well, when you figure how to package that, I'll buy it.

[PAMELA DESIMONE,CPF]

Bob, I appreciate all the help you are willing to give all your fellow businesspeople. Notice I didn't say "framers". Most of us are framers who opened businesses. I'll admit to being very naive when I opened my shop, and never gave a second thought to the fact I was IN BUSINESS. I could have used someone like you back then. Instead, I have had to learn the hard way, through trial and error, how to make my business a success. Any information you give I am paying close attention to, as I am hoping to retire in three years. I have a healthy profit margin, but if I can enjoy more profit, even better. I want to make my store as attractive as possible to any potential buyer. My thought is that you are a businessman who runs framing establishments. Do you do any framing at all?

[ArtLady]

When someone goes into this business and doesn't make a profit it hurts us all. The customer thinks the prices they paid are the norm and it splits the market for those are in "Business".

We had someone near us that thought they would come in and capture the market on price. It took three years but they went away. No resources to do a proper job.

------------------
Timberwoman
AL
I cut the mat, I pet the =^..^= cat.

[Bob Carter]

Pam-I would have an open rebellion if I tried to enter the private sanctum of my framers.Whenever I feel we need a little boost in production, I offer to roll up my sleeves and pitch in. After the laughter subsides, they get the point. I let the pros do what they have been trained to do, and I do the same. People ask me if its hard to run all my stores and my answer is that I run one company and the managers run their stores. The bottom line: Do what you do well and let others do what they do best. You remain productive and your people grow with the added responsibilty you have given them

[PAMELA DESIMONE,CPF]

Bob, You are fortunate you can concentrate on just the business side of business, but I think it is safe to say, most of us can't. The advice you and Jay are willing to share is good advice, and I hope many are willing to take it, or at least try.

[cfkane]

Pam;

I received this brief but invaluable advice from Jay Goltz recently, and I feel it is the most sound advice for those of us who need to wear all hats in our shop:

1.) Take Great Care of Customers
2.) Do Quality Work
3.) Price to Assure Profit
4.) Don't make the same mistakes: Find New Ones

5.) Persevere

'nuff said.

[Bob Carter]

The five items listed above all are great goals to conduct your busines, but how many of you do every one of those things religiously and still don't make the level of income you want? Now everybody put their hands down. The point is, just like the 5 steps, there isn't a magic bullet. Success comes from many factors, all coming from decisions based on some information. My intent is to create with you all a level of information that will make the decisions easier and more valid. Sunday, I'll post another record keeping procedure that helps us understand if the decisions we make are sound. Just like advertising or any other expense driven decision, you need some way to measure it's effectiveness. It's never 'nuff said

[B Carter]

Okay, gang here comes Lesson 2. If you have set up even a basic daily, monthly and yearly sales postings, Go back and recreate as far back as time and records will allow. This might not be the best time to go back, but it is the best time to start for the future. But once you have some history, I promise it will help. It's not enough, but it's a quantum leap forward than no records. The next small step for records is a great leap forward for profits(apologies to Neil Armstrong).We set up on Microsoftworks(any spreadsheet will probably work) our Cost of Goods report. It allows us to track by Vendor, Salesperson and Department what each workorder yields. Before someone says "I don't have time to do this", I would suggest you probably don't have time not to. We review each workorder for costings and margins. We shortcut a lot of the components by lumping together commonly used components into cost groups. For example, we have a form that list what all commonly used components cost and grouped by normal use. A lite of 24x36 might cost $2.05 and a piece of foamcore cost $1.33, and 3ft of mounting tissue might cost .48,(remeber about an earlier thread about knowing your costs?). So on every wood workorder that uses those components we cost that group out at $5.34 (adding $1.00 for wire, dustcovers, hangers, etc) So we add the cost of frame, mats and $5.34 and we're costed. On our short cut form we have all typical mats, glass etc prepriced, so we can cost out an order in about 30 seconds(really). We then about every week or so enter that data into the database. The filters allow you to determine which vendor is providing the best margins and best averages, we can determine which salesperson is selling at the highest margins and the highest tickets. It also gives you measureable results to monitor progress in any given period. For example, your margins from Studio are down a point or two, and it's not from a salesperson discounting. Maybe they've had a price increase and you haven't adjusted or adjusted enough. Without this type of data, you're just guessing. And this is serious stuff you're guessing about. Let the experts guess about stuff not so important, like the results in the Florida Presidential returns. We can't afford to make guesses that just aren't right. We make enough judgement calls, this method allows for some knowledge controling the decision.So, if you see that salesperson 1 is consistently the highest or lowest margins, it allows you to look further to determine why. You always want to try and mirror the successes of your best results. It also makes you look at which supplier generates the best average selling price/ft or which departments aren't living up to anticipated CoG. But without these simple tools, you're guessing. Amazingly, we found that the biggest give-a-way artists in our system, were our managers. Consistently the people in charge(me included) were a few points below our best people. Upon review, we found that our shortages were, in part,because every good long term customer would come to us to get that "special customer" discount, and guess who caved in first? You got it, but at least we were now aware of it and we have taken steps to correct it. Otherwise, it was business as usual and it was an extra little off here, a discount there. But without it, who knew? I know I have blitzed through the program, and if enough response warrants greater detail, I'll expand. The main purpose is to highlight how important good information is

[B. Newman]

Bob, don't shoot me, but since Less brought Jay's thread back, I thought this one needed to be here also.

Betty

Or Marc can just move us all to the Business forum.

[Less]

Thanks Betty,

Due to the discussions with Evergreen & Jason, I thought this would be useful to them, me, and everyone else. I was actually searching for "glass pricing" topics, and I found this little gem. These (What is a good profit? & Mechanics of profit)are probably the two most important threads I have read. I think it answers the question I always wanted to hear from someone who has had enough data about our industry to answer one simple question. I suspected I knew the answer for me. But, based on my experience to date, I wanted it confirmed by an authority.

Jay and Bob both seem to agree that a framing business that grosses 300k should provide an owner an average compensation of 65K. This is a figure that would be a satisfactory starting place for ME. This means that you need to multiply your compensation goal by four to get the needed gross sales necessary, or 25%+- of total sales. If our numbers are lower than that, we need to become better businessman. If our numbers are higher than that, you are moving in the right direction. If you are running your business as efficiently as possible, then the only way to increase your compensation is to increase your gross sales. Seems obvious? If I am wrong, I hope someone will correct me.

So, how does this information relate to me, having started a relatively new business from scratch? I am roughly making those percentages, just not enough gross sales yet, and I am not efficient enough yet. What can I do to change this fact? I don’t discount as much. I am learning to be confident about pricing. I mark-up higher than I did. I have become much more efficient at buying and negotiating with vendors. To date I have spent entirely too much on marketing, as I expected. It has paid off in developing my upscale image, but it is time to bring this figure down to a reasonable percentage. How will I increase my gross? I will be moving to an area with a lot of walk-by traffic in January. I have none now. My reputation is strong and it brings me a lot of new clients.

Ok guys, what am I missing?

[Cliff Wilson]

Yes, Thanks Betty!

I have been open 2 and a half weeks. This makes it easy for me to calculate and take study numbers, but not so easy to study trends. :) I am averaging 24% COGS on 9 framing jobs so far. Is this ok? What's average? Calculating is easy knowing what the numbers should be seems more difficult. Also, what is reasonable numbers (%) for advertising/marketing??

Thanks,
Cliff