28% framing order

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JbNormandog

JbNormandog

SGF, Supreme Grumble Framer
Joined
Apr 8, 2004
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NJ
Hello all,

Just read an article in PFM. The article said that basically our cost for materials per framing job should not go over 28%. This includes only real materials such as glass, mat, foamcore, moulding, not our time or shop.

It states that if you go over that you should raise your prices. The farther under that number the better for you.

I think I checked mine correctly and came up with 18-24% /order.

I was just curious what numbers Grumblers come up with.
 
I guess I should do some price raising. Mine average 39%. This is really bad, right?
 
18-24% is great. I assume you buy length. As for 39%, it is fine if you’re not spending too much on labor (you are buying chop and join).

We are in the lower cost category as well, but we buy length.
 
I just switched to buying mostly length when a chopper will do a good job. (Am saving alot)

Mecianne, the article suggested to raise prices if over 28% to get under 28%.

This was just an article not a law but overall it seems like a good starting point to establish where we can make money or lose money.
 
Length does save, but you have to buy more than you need, larger quantities than you are going to be using for that one job, and you add labor costs, equipment upkeep ($20 to sharpen and $10 to ship chopper blades)

When I calc COGS I use chop price, not the length price.
 
Your cost of goods is not defined by the price you pay for the product. It is based on the cost of goods as a whole. In other words,

Starting inventory + purchases - ending inventory.

It is possible for a business to buy extremely low cost product but have a very high cost of goods because of waste and stagnate inventory.

When buying length, the difference between the length price and the chop price is the opportunity for extra margin. It will only turn into real money when the inventory is sold. There is real money to be made with length, but only if the inventory is effectively used and labor costs are spent effectively.
 
Hi Bob-If I might add something?

First, I will make a suggestion on how I think you ought to calculate CoG and then say Do not listen to me or anyone else except your CPA. And whatever he tells you, do it consistently so that you have a solid base line of comparative numbers

Disclaimers out of the way, I think a very wise way to calculate this number is to suppose that you do not have any inventory and you very first customer comes in and orders a frame.

You need 8ft and it actually costs you $2/ft; and you have figured your selling price on that assumption. You have set your pricing at a 4x markup (25% CoG) and charge $8 ft or $64 for the frame. All is perfect, you have it in your POS to get you exactly that result.

Except you order the moulding and, up jumped the devil, and you get 15ft at $2/ft or $30 cost (plus any shipping). So now, your actual cost of goods is really 46.8%. In essence you took in $64 and will pay out $30.

Sure, sure you say but I have 7ft of useable inventory left so my CoG is really 25%.

Try mailing that 7ft stick to the phone company to pay your bill.

Just like Bob's example of using a "fixed" component (chop price), it doesn't really determine CoG's except in the hypothetical

Simply stated, the relationship between what you "actually" paid and what you "actually" charged is your CoG.

Everything else is a wishful act of fantasy

You do need make exceptions for standing inventory where you actually stock the product

But, again rely upon your CPA to tell you how to set up your inventory. I am sure we will get people that will include all labor associated with the project and other variables too numerous to mention

But, in it's simplest form it is all about what you pay for material and what you charged for the same

I suspect that Meciane's numbers might include some other variables: or she buys horribly or sells horribly.

Perhaps it might be fun if she offers a hypothetical example and we can all look at her method and perhaps offer some advice
 
I along with all of you would love a COGs that comes in at 28% or better. But may I interject a bit or reality here. The notion of raising your prices to achieve a 28% COGS is a lovely one, but I must ask you all this. Can you do so and still stay competitive in your market? I can't. What's a boy to do?

I shoot for 30% on average. Sometimes you win big, other times not so much. When you add in wholesale accounts, getting your COGS to look much better than 30% is a bit tough. Any insight as to how to effect this (other than raising prices) I would be interested in hearing them.
 
Well, if you can't afford to raise prices the only other option is to buy better. Maybe some box mouldings? Last year I worked with all my suppliers for better prices and I don't pass that savings on to my customer. That really affected my bottom line this year, my accountant just yesterday told me I came in at 24% COG. I don't have any room for major box moulding program but I do keep 3 or 4 basics around that I get great prices on.
 
This is where a big plug for going to shows goes.

At Las Vegas Omega offered 50ft at box prices. Decor did the same + free freight. NEI Design Guild was at 52.5% of base length+ free freight. These deal were available to every one.

At box price you can have a 10% COGS and still be competitive compared to 3x chop.
 
I buy chop...sometimes, but rarely, I buy joined.
Here is an example of a job & I calculated about 34% COG on this. I just opened shop in January and have been struggling to get a price sheet together. (One that I and my customers will be satisfied with.)
Customer cost:
28.94 Moulding (4.32 ft) Size: 19 3/4 X 13 3/4
11.00 Rag Mat
8.25 Reg. Glass
5.00 Fit
53.19 TOTAL

My Cost: 9.65 Moulding
6.36 Rag Mat
1.00 Reg Glass
1.00 Fit
TOTAL: 18.01

I have really struggled with mat prices, but I keep my prices low enough that customers seem content not to complain (too much). I mark up all mouldings 3X. We (my husband) also do photography which brings in revenue, and we have no employees. I keep no inventory.

So what is the verdict? Am I pricing my self out of business (in the long run)? Or if I am able, is it wise to be this reasonable?
 
Kathy shows how skillful buying can make a difference and Dave has listed some great options.

Most of these options are available by simply asking if options like these exist. I have never seen such an amazing level of aggressiveness in the marketplace.

One thing I might add would be if you do land some of these opportunities, lookk for ways to take that Buying Advantage and turn it into a Selling Advantage.

While there is nothing wrong with doing exactly what Kathy did, she may wish to consider seeing if she might find some of the great deals and offer some promotional offerings.

With a reduced cost and same retail, she may make more margin, but not create anymore sales. But, if she can create a few items where she has a reduced cost and a reduced selling price, she may sell more.

But, before any bright eyes says "Why should I sell more for less? Isn't that just more work for me?"

The retailer would see this as an opportunity to sell more "promotional" product at probably higher margins, but also add on the full priced, full margin products like glass, matting, mounting and anything you can add on.

It is as classic an example of how other retailers do it. Let's face it, everybody loves a deal. Buying well just allows you to protect your margins (and in many cases, improve them)by selling more
 
Mecianne, just a quick comparison to your price - mine would be almost $73.00, making my cog 25% in this example.

My glass and moulding price would be just a little higher, but the mat would be about 1.5x higher and the fitting 3x higher.

$53.00 vs $73.00. Would a customer walk out and search for someone else over $20.00?

What's their time worth?

Betty
 
Two things have been left out on the suggestions of how to lower cost of goods.

1) Sell more service. V-grooves, float mats, etc.

2) Use your inventory better. Be conscientious about putting away product in an organized way. Sell in stock materials whenever possible, etc. Make fewer mistakes.
 
Hello all,
First post follows:
COG, it has been correctly pointed out, is beginning inventory (even if it is zero) plus purchases, less ending inventory (again, even if it is zero). This calculation, however, is an ANNUALIZED calculation. If you do this math for each and every job you take in, you will have COG figures all over the map. By tracking it over time and managing inventory carefully you can make the decision regarding whether length or chop is the correct one. A very rich, smart man once told me "I don't make money selling, I make money buying."
Erik
 
Originally posted by Bob Carter:
While there is nothing wrong with doing exactly what Kathy did, she may wish to consider seeing if she might find some of the great deals and offer some promotional offerings.

With a reduced cost and same retail, she may make more margin, but not create anymore sales. But, if she can create a few items where she has a reduced cost and a reduced selling price, she may sell more.
Click to expand...
Yeah, it hasn't done anything to bring more people into my store all it has done is put more money in my pocket. But it was money I was just giving away before. I wonder who I learned that from? Oh yeah, it was Bob.

Now to turn that buying advantage into a selling advantage.........
 
Thanks, Kathy. Take credit for at least making that first step of buying better. We'll work on that Selling Advantage. But, you will have to ask me,because as you know, I will never volunteer on my own.

Erik-you bring up a technical point and I would counter that it probably is more useful as first,a monthly indicator, then,aggregately,as an annual indicator.

But, I do recommend that framers review most,if not all, workorders, for individual tracking of Cost of Goods. It is exactly that "all over the board" factor that we need to know quickly when we have a potential problem. Sometimes, it might be a key of vendor problems or freight problems or selling errors or cost increases not being addressed.

Those issues are best handled with constant and current monitoring. Sure, it might be a little extra work, but the benefit is measurable.

Welcome to our little diversion. Will you be visiting us at Three Stars ove Texas end of Apil? I would enjoy visiting with you
 
Mecianne....... where are you getting rag mat for $6.36? I presently am paying around $8-9 per 32x40, depending on color.
 
Gina...Crescent Ragmat from Cash Moulding Sales in Birmingham, AL. Although since February 01 2005 these have went up to 7.12 (I think this is right...I am not at the shop right now) We pay a bulk rate even for a single sheet.
 
Originally posted by Mecianne:
11.00 Rag Mat
5.00 Fit
Click to expand...
These are the only two areas that I would have a REAL question about.

Mecianne, basically you are quoting out a 16x20 which is eatting up 1/2 a mat board (in theory. 1/4 in reality) Rag? I would say about 50-75% more or start considering alphacellulouse...

$5.00 fit... can you really fit that in under 6 minutes? 1/10th of an hour?

Fitting charges have long been a much discussed topic but IMHO, if the customer ever sees that I will work for only $5, s/he will expect me to block for the same $5.

The one thing that sets us aside from the husband fumbling around on the kitchen table is our knowledge and skill that we have garnered over time. just like a doctor or lawyer, it is what we have to sell. Our knowledge, skill and time.

Our minimum fitting on a 16x20 is $22, and that assumes that there is something that will make it take the full 20 minutes to fit; like washing and cutting glass, making sure that all the bugs are out, taking care with the customers artwork, and backing with a neat flat paper or tyvek.

If your mechanic only charged you $5 to change your oil, lube, and check fluids..... wouldn't you wonder how good a job he was doing?
 
Something else I did to cut COG was to pare down the vendors I use, I gave more space to my two local suppliers and cut down on non local people. Saved me a ton in shipping charges. I raised the "set" price on each frame that is out of town to cover shipping.

Plus one of my local suppliers has been bringing in moulding from Australia of all places that looks like a lot more than you pay for it. I've got higher mark ups on that stuff and it still is a killer bargain for my customers. Been selling a ton of that stuff and I'm not required to buy a whole box which I don't have room for although they do sell it by the box also. I guess maybe I am bringing in less money with it but it still keeps my COG's in line. Course if I didn't have that nicely priced stuff to sell chances are my customer wouldn't have bought anything and my COG would have been zero......
 
So Kathy,

Still in business.

Very glad to see it.
 
By a wing and a prayer Less........as Bob said lower COG's isn't gonna bring them in the door.....
 
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