Sliding Mark up Scales

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Bob Carter

Bob Carter

SPFG, Supreme Picture Framing God
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I really had to think long and hard about this post, because it may appear that I am disagreeing with my friend, Jim Miller

There are not many people that are "better friends" to our industry than Jim, so this really is a "gentleman's disagreement"
I think sliding scale markups are really "de facto discounts" designed to get you to lower your retail prices to make that "high end" product more attractive to your clients so that you might sell more so that you can buy more from the vendor

All at a lower margin to you, but they will tell you will make more gross profit dollars

And, I cannot argue the basic premise except that it is really putting something "on sale at a discount" but without the benefit of a "savings story"

And, worse, it is a margin robber

Let me share a real world example

We track CoG pretty seriously. Whenever a workorder doesn't meet our acceptable margin it's flagged for investigation. Lot's of legitimate reasons, but is easy and important

A recurring culprit recently has been receiveing more footage than needed, you know you ordered 11ft but received 19ft?

So, we did a quick review and found we had 27 orders in which 23 had overages of 5ft or more

Let's plug some numbers into this bad boy

If we use the "published" sliding scale markups in Larson for a $2, a $3 and a $5 wholesale cost/ft and you establish a retail selling price based on those multiplier, you start out with a spread of five points in margin

Now, use the 11ft as what you will charge your retail client, but factor in the fact that you received 19ft (This is exactly what happened on one of ours) and now your " base" CoG on this moulding i 40%, 42% and 48% respectively.

No one can tell me that is healthy

But suppose we use the $2 rate (4.3 times) as a uniform multiplier, we now have a uniform rate of margin that on the $5/ft that is 8 points higher

And, if you do the math, you will find that you also have $38.50 additional dollars of gross profit

The fact is that we all get shipped more length than ordered and the lower the multiplier, the greater the damage

Now if you feel that you need a lower "retail" to sell this "high end" product, isn't that "discounting"? But if you use a more "standard" multiplier and feel that retail is too high, then at least get the benefit of a "Sale Price"
 
Bob,
I always attributed the higher margin on lower priced mouldings to the "fixed" cost of cutting and joining. Most retail markup is 2-2.3 times. But when retail price includes some labor, a straight markup percentage doesn't work, since the labor & materials are the same for a $2 moulding or a $5 moulding. I think that it's when you start dropping below the normal markup ranges that you are discounting. And yes, then it becomes a sale.
 
This is a topic I have wrestled with for 14 years. I made the decision in January to no longer use sliding margins on moulding. It matters not if the material cost is 50 cents or 50 dollars per foot, I use the same multiplier.

Using a calculator and running similar scenarios as you just did pushed me to make the change. That and just plain buying better, I have gotten my overall COGS to 20%. I am running a more profitable business than ever before.


Thanks for all your help Bob. We need to talk business just as much as framing.

Not that I'm taking your side over Jim's. I'll be on his side and thanking him tomorrow on some other topic.
 
I believe there are cases where one should adjust the margin.

If something that usually costs, say, $2 per ft was on sale for $1.50, the other fixed costs associated with it are still constant.

Another scenario: A very low end frame / fillet / liner, etc, may cost less than $1/ft.
Will it have the same markup (say, 2-2.3 times) as something costing $8 /ft? Labor is still the same (even more in some cases) for the liner as for the more expensive frame!

What about the CCs frames? If we use the same markup as for an $5/ft frame, they'd be almost unaffordable.
 
After taking Jay Goltz' class on pricing, I too went with a fixed mark-up. It was more a point of having each dollar spent give back a uniform return on the investment. Then I have a constant $ amount to cover shipping.

I am using chop pricing times 3 plus a flat $2.
On chops with a cost of less than $2, I raised it to 3.5 + $2

And for CC frames . . . . 2X plus the freight if from West Coast, 2.2X for local.

Once a customer is okay with spending $23 ft, are they really gonna balk at $27?

Bob - your point here follows the advice that any sale/discount pricing ought to be funded by better buying in order to maintain the margin. Why are we too willing (and conditioned) to run "unadvertised promotional pricing"?
 
Hi Eric-I think we have been told to do as vendors would like us to do. And I am not suggesting that it's an evil plot at all, but sometimes it works best for them

I think pricing has so many variables that no one method is the best. In fact, a wiser course of action might be to use a little of this and a little of that

I am one of those retailers that see nothing wrong with offering a little promotion when every other retailer does. Consumers expect it

Somewhere along the way we retail framers have been taught poorly. The original concept of taking a discount off a fixed margin (generally too low) was injurious has become taking any discounts (earned or otherwise) is evil and unethical.

We need to find those opportunities where an "earned" advantage can and should be leveraged to our advantage in selling more

Instead we take high end items and price them lower than usual margin-based pricing bcause we feel they might be "over-priced"

There really are other ways

And Jerry, thanks for the kind words but this isn't about Jim and I at all. In truth, I agree with him on virtually every other issue

If there is one point that I need to stress, it might be that we change our thinking to incorporate some of the traditional techniques used by other retailers
 
Bob- I think your definition of sliding scale markups in your initial post is spot on. I see your logic of "if you are giving a de-facto discount, why keep it a secret ?" So far, so good. How do you then let the customer know that they are receiving special pricing on what they may already perceive as pricy but would, as we would be telling them, "normally" be even more so? How do you get that message across in the retail setting?....especially as it applies to some mouldings but not others, in what would seem to the observer a rather arbitrary way (owing to the arcane reasons that various mouldings cost what they do)?

:cool: Rick
 
Rick-Good questions. But, a simpler method might be to forget the things we were taught and start from scratch

Let's take the example of the three mldgs I showed in the prior post (or use any item-and my favorite example might be the Antica line from Larson)

Why should the $5/ft (wholesale) carry a smaller margin than the $3? If the item looks like it should have to sell for less than a "fuller" margin, that sounds like a great reason to not carry that SKU, doesn't it? More specifically why should any of the three profiles of Antica carry a lesser margin? They all look great and the only "sliding" ought to be to "slide" more money into your pocket

I would suggest that if you are comfortable with a smaller mark up on higher priced items, then set your multipliers at a uniform rate in your POS and maybe every week rotate a "Weekly Special" on Antica this week and Sevilla next week and so forth. Offer a percentage off based on a "normal" markup but yielding a "savings story" on each line.

Maybe you could couple that with calling your supplier (and I'm only using Larson because they are so identifiable) and tell them that you will promoting "XYZ" line for the month of June and see if they are willing to offer you a little help. You might remind them if they want to sell more of that high end product, they ought to reduce their markup, too

Trust me, it just might surprise you

The point is to establish a little more aggressive pricing stance than to just lower your price

But, I must say from experience that if you offer (and promote with signage AND attitude)promotional products, consumer do respond

Remember last time you went to trade show and loaded up with (fill in the product of choice) because they had a show special? You didn't think that they "artificially" increased their prices so they could offer that 20% off,did you?

Or, were you just happy to get that "sale" price?

But, perhaps, their "list" price was based upon a full margin? And, that allowed some "promotional" pricing?

There is nothing arbitrary about it, my friend
 
Here is something to think about; but, first my qualifier: I definitely am a small busines and have but six items in the shop at present.

I use a standard markup on each item in the package, vice a total markup on the completed package, plus a "shop fee" that covers glue, v-nails, mounting corners/strips, etc.. I use a sliding scale for "framing fee/labor" that slides based upon the number of mats and openings. For example: one mat with a single opening has a set fee. Each added mat and/or opening, the fee increases.

I cover my expenses in my mark-ups and my profit comes from the framing fee/labor; and, I can beat the big boxes in the area.

It works for me; but, then, I am a small business and such may not work for larger shops.
 
Ho boy I love this subject.

Lets just for giggles look at two mouldings and the same frame.

The custom frame is a nice little 3/4" gold tone frame, with glass & fitting for a 5x7 photo of Widow Gertie's dog.

The chop wholesale price is 2.48/ft and of course LJ is delivering it "free" [they don't anymore, but just for arguement sake, so we're not dealing with the $9 for UPS]

Your standard mark-up in the computer is 3.5 and the POS figures this out automatically, and charges the Widow Gertie 8.68/ft. It then adds the glass and fitting charge and your done: $27.36.

$17.36 for the 2 feet required to make the frame
$ 4.00 for the regular glass
$ 6.00 for the fitting

I can hear someone out there already yelling... "BUT THEY ARE GOING TO CHARGE YOU THE FOUR FEET MINIMUM."

My point, but there's more. Call LJ or any supplier and order a 5x7 chop. They won't do it.

So you get it 6x7 and cut it down, or you get in 2' and chop the whole thing yourself and then you find out that you should have gotten the 4' you were charged for on the bill [$9.96 for custom cut] because you crushed the first three inches and now you need just 8 more inches to make the frame...

Meanwhile you have been at this problem for 30 minutes and still don't have a frame done. But lets be generous and say it is done. Yippie.

$ 9.96 cost of 4' of moulding
$30.00 time spent making frame
$ 1.20 8x10 piece of glass
$ 1.10 Scrap backing, screw eyes, ATG, points, paper etc.

$42.26 (should have just given her a mat and stock 8x10.)

POS are great things. First you can load them in such a way that they will not let you charge less than 4'. Second, you should be able to front load the pricing so there is a constant before the price of the frame comes into play. Say about $5.

Also if you are paying for UPS, that gets loaded into every order. And if there is a "minimum" charge.. add that too.

So lets go back to Widow Gertie's frame.

$ 3.00 Minimum handleing charge
$ 9.96 4' of chop

now run through the POS becomes

$ 3.00+(9.96x3.5=$34.86) Frame
$ 4.00 Glass
$ 6.00 fitting

Total $47.86. It's only $20 more, but it helps and it should convince you in the power of stocking some small photo frames... cuz Widow G.. aint buying no $50 frame for the mutt... she's off to Walmart to get something for $4.27.

But my real point here is, if you front load the mark-up. The factor can be a more gradual scale or curve.

3.5x for under $2
3.25 $2-$4
3.10 $4-$6
3x $6-$9

or something like that.

If you sell a 20x24 in that Water Guild 2" from LJ, did you really need to make half you months rent at 3.5x or could you live with 2.5 and some front load?
 
Bob, we're not disagreeing here. There's no doubt that reducing markup reduces profit. As you said, it could be painful to the bottom line -- if that's the only action.

Let's complicate the issue.

If I want to sell more of a high-end product, I could simply reduce the markup (profit margin) on that item. The change might be justified by the expectation of greater sales of that high-end product. That is, perhaps the margin dollars would actually increase, while the margin percentage goes down. Perhaps.

But that tactic, in agreement with Bob's comments, sends the COGS in the wrong direction and displeases the acountant who gets nervous if margin percentage drops even a little.

Rather than do that, I consider the mix of products I want to sell, and then price them appropriately to create a balance. In addition to adjusting some high end margins down, I also adjust margins UP on low end products, so that my overall margin rate is actually better than it was before.

For example, I sell more Museum Glass and Optium Museum Acrylic than the typical framer. The mark up percentage is less than that of Conservation Clear, but still better than twice the margin dollars of selling Conservation Clear. That makes more dollars fly around, but it's bad for COGS. So, when I reduced the mark up for high end glazings, I also raised the mark up for the common glazings -- good for COGS. A side benefit is that I now spend (as well as earn) significantly more on glazings, which allows me to negotiate lower costs for all kinds of glazing products, high and low end.

This pricing strategy germinated in my POS when poly mouldings began migrating into my stock. In order to avoid losing sales at the high end, I reduced mark ups of some costly mouldings I want to promote and, at the same time, raised mark ups on the low end. I have mark ups as high as 15x on some poly mouldings. And they sell well, because they look really good.

Whatever the product type, deciding pricing is a balancing act. As I continue to refine mark ups (and other operating factors), I sell more high end products, earn more profit dollars, have greater profit precentage, and lower COGS. Bob likes that, right?
 
1st, I've been a fan of flat rate markup my whole life. Forget the 2.3 markup unless you want to go broke. I also believe in minimum retail prices. If I get a moulding for free I'm going to charge a minimum price per foot. Thanks to Bob I took a few of my best sellers that were at minimum prices and raised them 50% and still got nice sales with huge returns.

I've been flying the wife to Nantucket, Ma over the winter and yesterday we got to check out the shops getting ready for the season. The wife looking in a store window saw a shirt she liked. We went in and checked it out, $375.00 for a shirt. Next store shirts about the same price a blazers $1575.00. A bedding store was next cheapest shams $200, sheet sets $300 etc. etc. These prices are the norm in this setting. Women shoppers were buying.

Maybe the problem with our industry is we are under priced. Most set the prices from info given to us by our suppliers. How stupid is that? How many set prices based on Decor Pricing Survey?

Bob may not like this statement but I'm a self-employed picture framer not a businessman. That being said I need to make a fair wage after all the bills are paid. I also need to enjoy life, take real vacations and not have to work 80 hours a week. If you are busy and not making what you should your markup maybe your problem.

framer
 
TG Framer is right on the money.

Markups should be what we think we should charge to make a good living. A 2.3 markup might be good in a town 20 miles from you, but if your town is expensive and your rent is 5x the rent of the town 20 miles away (with their 2.3 markup), then your markup should be more.

Many companies charge what the market can handle.

That's why you see a gas station charging $4 a gallon in one part of town and another charges $3. And both have their customers.

And as TG Framer noticed, expensive stores in expensive towns will always have their customers who are not easily sticker-shocked.
 
All of this discussion reminds me of the good old days when engines had carburetors. We could adjust the ratio of air-to-fuel mixture to suit our driving pleasure.

We could get more power, making the engine run "rich" by increasing fuel in the mix. Or we could get better fuel economy, making the engine run "lean" by increasing air in the mix.

Businesses are something like that. We can get more sales/power by running "rich", or we can get more profitability/economy by running "lean". Too much one way or the other, and the engine wouldn't run at all.

The point is that each of us adjusts our own business's ratio of the price-to-profit mixture. If we increase our profit by raising prices too much, we lose sales. If we increase our sales by reducing prices too much, we lose profit.

The difference is, unlike our old carburetors, we don't have any factory specs to guide us.
 
This thread is really what makes this forum so beneficial-solid ideas from real world experiences.

I really do agree with both Jim and Framer.

I especially liked Jim's post and it took me back emotionally to when I was young whippersnapper that thought I had all the answers. My best mentor took me aside and explained Balance of Sale as a way of attaining Gross Profit Margins. He made his "name" as a great DM that handled drapes. He knew that he had to sell so many pair of Petit Plume drapes (at a lower price and margin) and so many Damask (high end/high margin). He knew there was magic breakeven ratio and if either were out of balance he either would have higher sales but lower Gross Profit or lower sales at a Higher Gross Profit. Where that teeter totter balanced out determined how many "rocks were in the box"

Jim's balanced approach is so fundamental

You should have some great High End (Damask) but don't be afraid to have that $350/shirt tag and balance it out with some Petit Plume to generate some volume

If there was any single advice I might give to my good friend Jim, it would be to raise his Museum Glass 10% tomorrow. I'll bet the next round of drinks at the next trade show that Jim will not have one ounce of resistance

Or, run a special on Museum Glass where he marks his Museum Glass for the same mark up as, say, A/R. That's a fair markup right? Nobody's gouging, right? And then, run a promo for the same price as he is satisfied with now and see if he generates any extra excitement (and sales)

And, rest assured his effective buying of the poly balanced with a retail based on "what it should sell for" and not some artificial "sliding" multiplier will provide a "better" Balance of Sale Gross Profit no matter what else he does

And, Framer, I'm with you, my friend. We all need to follow your idea. Every single operator would be better served listening to Jim and Framer rather than me
 
Originally posted by Jim Miller:

The difference is, unlike our old carburetors, we don't have any factory specs to guide us.
Click to expand...
That is a great analogy!

It would be really nice to have a starting point to unjust from.

The 'canned' pricing I have looked at just doesn't make sense. Take the LJ price schedule. A 3 dollar piece of foam board sales for 46 bucks and a 80 dollar piece of glass is sold at 129. That is just a wild example, I don't actually have this in front of me now.

Does anyone use 'suggested pricing' that is out there and does it work?
 
Jim posted when I was and his post is great.

We all remember that really good mechanic that just "seemed" to "feel" that proper blend? There weren't many of them, but they were masters

Jerry-Those charts are filled with so many errors. I truly feel most are based on "sliding" scales and per UI components

One of my favorites is from the TV chart for Museum Glass. They show the price for a 26x32 to be less than a 24x36. Yet, you need to buy a 32x40 lite to get the 26x32

The trouble is that somebody that probably never has rung a cash register did the "math"

The point: You have to "test" all your prices by market and by costs
 
FramerTJ, I am excited by what you said, because, as a new shop, (3 years), I am struggling to make ends meet and thinking it was my marketing,.. As I know my marketing needs help, I also am excited by this post because i don't think my mark up is high enough. I also am an artist and framer, not a business woman, so I know there's probably tons of stuff I'm doing wrong. Most of the repsonses to this post go sadly over my head.
On one hand J.MIllers idea of marking up poly moulding to a rate that people can still afford easiely but you make a lot mor emoney on it sounds like a nice idea. And thusly reducing mark up on some of the higher end stuff. I know that for me I have been marking up closed corner frames (2 times cost +shipping) less than everything else, which I only mark up 2.5 now.. (might not include high shipping costs, extra legnth I get, etc..). It sounds like I need to raise my fixed markup??
Learn something new everyday.. And as Framer TJ said, "forget the 2.3 markup unless you want to go broke..", I'm listening with open ears..
and I love Nantucket too.. Do you know the Brotherhood of Theives? (It's a tavern i love.
 
The main problem I see with using chop prices is that vendors tend to very drastically on chops for the same or similar moulding.

I know yall have touched on glass so why not cover the mats, completing the entire frame.

What about a small scale on matboards? Unlike moulding and museum glass, waste isn't a factor. It only comes in one size and you eat the whole board rater its a 5x7 or 30x40.

My add on charge to every matboard is exactly the cost. So does it make sense to mark up a $5 board at maybe 3 more times and a $25 board 2 more times?

[ 05-22-2006, 08:47 AM: Message edited by: Jay H ]
 
I never have anything "on sale" or on "special" or "50% off sale". My keep my prices very competative. I always say to customers: If you want 50% off like M*****LS (my prices are less than M... AFTER their "50% off" sale...lol), I can double the cost of everything and THEN give you 50% off!... they always laugh.

I DO however offer discounts on anything i no longer want to keep in stock or is discontinued. I also offer discounts on LARGE orders, like 25 items frames alike....
 
Eric and I took the same course, albeit in different years. I can recall vividly when Jay suggested a 3X markup based on chop PLUS an additional $3 per foot for labor there was a collective gasp throughout the audience.

Having used a variation of his formulation since then--4+ years, I can tell you that 3X chop is a good STARTING point. Depending on how I buy, this could be as high as 12X chop.

And yes, we are profitable even when we run sales--i.e., "discount"
 
I am still in the process of 'tweaking' & experimenting with our new POS system. I want my POS prices to be the same as BEFORE I put the system into play!

One thing I recently realized is that our POS program does not round UP when calculating UI's.

When doing my invoices/work orders by hand, I take a 24 1/4 x 38 3/4 frame and round up; 25 + 39 inches = 64 UI's (vs. 63 UI per the POS math). Then I establish the footage needed and determine the customers cost from there.

As I experiented with the POS I realized I was losing monies when comparing the same invoice to my 'manual' copy. That's where the difference was. It might not add up to much per order, but by the end of the day, week, month, it was significant.

According to my POS tech help, this cannot be adjusted - thus, today I will be 'retweaking' my charges.

This is a very good thread - love looking at pricing issues from all angles and adapting from there.

I too have kept my markups the same, regardless of low end/high end moulding.....thanks to Jay Goltz's class, and threads such as this.

Now......if I could just get my Arizona desert studio to look like it was in Nantucket! Gotta work on this one!!! :rolleyes:
 
If we knew the Price elasticity of glass, moulding, matboard even our labor then we could decide whether a sliding markup or a flat rate would be best for each product we sell. We could have a sliding markup for various moulding and a flat percentage for regular glass and a shallow or steep sliding rate for museum glass depending on the rate of elasticity.

We just dont know the elasticity of what we produce. For our industry, our perceptions and backgrounds drive our prices more than our knowlege of our product. With out solid data we just guess at our prices. We allow our fears and desparate times to effect our prices more than information that with a little effort we, our suppliers or PPFA could gather.
 
" that with a little effort we, our suppliers or PPFA could gather."

I'm afraid they have tried. The result is much of the "suggested markup tables" we've seen. I don't know how it started, but unfortunately, they ask what we do, we tell 'em, they publish what we told 'em, then new framers and others that "don't conform" rush to copy the results, then, they ask us what we do, ...

Now, if there was some way to get in the heads of the consumers ... alas, they would probably just tell us what we told them to tell us!
 
Mitch-I think your answer is precisely correct with one add on. I'm not suggesting that we are lazy, but, doggone it, it is really too easy to plug some variable mark ups (found so easily in catalogs)and let the chips fly.

In addition, the base prices rarely actually reflect what any of us pay, either.

But, I think the way to eliminate this little problem is a matter of semantics

Let's not call it a "sliding scale" markup; let's call it what it really is a "sliding discount" markup.

So are you a "discount markup" framer

And to help prove this point here is my personal favorite, the old you charge the client for 12ft, you order 12ft but you get 20ft scenario

And, on top of that 8ft extra at $7 or $8/ft, you're telling me that I ought to have a lower margin? How much margin is protected by adding on $60 extra "cost" to that order

You want a real eye-opener?

Go back for the last 30 days; chart your mldg purchases. List what you ordered (and what you charged your client), list what you rec'd plus what it cost you per ft. Then compare what you actually charged your client with that sliding scale vs what you should have charged with a more uniform, non-discounted markup.

Want to bet that extra footage will be offset nicely with that uniform markup instead of a discount markup?

We actually do it and it can be mind-boggling. I know sometimes the bundles just don't fit into your schemes. But, take a look at your own patterns. I have a difficult time believing that the smallest bundle in the rack really was 19.7ft. So, if it really was, isn't that even more reason to not discount the margin

Man, I love that term "discounted margin"

It's almost as good as calling homebased framers "self-employeed" framers
 
What an eye-opener....
Over the years sometimes it has seemed that even though we're busy, and making more money, that there should be "more" - like we're not always bringing home as much as we should - "discounted profits" as it were.

The dirty "sliding markup" is definitely the culprit - as is perhaps unwise length purchases. While we order a lot of length, the whole order-11-get-19 can really kill you - quietly. I see the shorts bins getting more full of mouldings since we're getting such deals on length - but maybe some of those 5' orders should really be ordered chop......
Things to ponder. Gonna be a long day looking at invoices.

"Sure, that awesome San Marcos frame is on sale at 15% off - hurry and get it today!"

Tony
 
Bob,

Before I can either accept or reject your thesis of the “sliding scale” argument, I need to be able to follow your math.

I don’t dispute that for that wholesale length moulding of $5.00 using a multiplier of 4.3 would result would be an increased profit of $38.50, or that Larson-Juhl’s recommended chart is way too low.

However, your figures of 40%, 42% and 48% made me question my knowledge of basic accounting. So much so, that it made me scramble back to some text books. It’s taken me several days of playing with your numbers to discover that however I fiddle with them, I can’t arrive at the same conclusions.

Since CoGS independent of sales, how did you arrive at those figures? And, expressed as a percent, a percent of what?

But suppose we use the $2 rate (4.3 times) as a uniform multiplier, we now have a uniform rate of margin that on the $5/ft that is 8 points higher.
Click to expand...
Spreadsheet2.gif


Using my math, I get 5% higher, not 8%.

Could you please lift the cloud from my befuddled mind?

And, I’m sure you’ll agree that you would have been better off had you ordered chop rather than length for that 11 feet of moulding, assuming that you consider that 8 feet of residual moulding scrap and unusable.

Spreadsheet1.gif
 
Bill-I guess I don't get why you go on these crusades. You've done it a few times before and the most recent time was your spreadsheet on Museum Glass

Now, I didn't get my books out to understand this equation, so i'll give you the dollars and sense of my post


So, the average framer orders 11ft at $2.00/ft an dmarks it up by the chart to $8.60/ft. They charged the client for 11ft at $8.60 or $94.60. But they recieved 19 ft or $38.00 cost. My friend, in real world terms that framer collected $94.60 and will pay Larson $38.00 in 30 days. That will yield 40% CoG. Now if he ever sells that other 8ft, or 6ft or no ft, the next order will reflect a lower CoG. I sure wish I had your optimism because every frame shop in America has 10's of thousands of dollars laying around as unused "assets". Do you think Larson will accept 6ft of this "asset" as payment on the bill

Do the same for $3 cost and the retail charged is $135.30 and that pesky invoice is $57.00 (42%) and the $5 mldg with the lowest multiplier yielded $198.00 in the register but will require $95.00 to be paid (48%)and suppose your account is COD-then it's right now.

I really have no interest in some abstract analysis, but much more in helping those poor framers that hope to attain a 30% CoG on their sales but just won't have a chance with these discounted margin markups.

And, if they took in $198.00 today and have to pay $95.00 tomorrow upon delivery, they could easily be more befuddled than you
Now one thing we might agree upon is that there is a magic ratio of when chop is better than length. Depending on many variables like discounts on length (which are much more generous with Larson) to chop (which are virtually non-existent).


But, I suspect that the real point has much less to do with what will really help the average framer in both margin and cashflow, but trying to pick flyspecks out of gravy
 
Bob,

I was not disputing your conclusions, … I happen to agree with you. I was just trying to make sense of your math, so that in the future I could follow your logic.

My “crusade” about Museum glass was simply <u>my</u> opinion on how such items should be priced. I gave what I thought was a thoughtful, reasoned response. It happened to be different from your approach and I tried to justify my stand by using a spreadsheet. I am comfortable using them because they help me clarify problems and make decisions.

Since it appears that questioning your positions makes you uncomfortable, I shall refrain from responding to any of your future posts.

I apologize now and for the past for having questioned your theses.
 
Since it appears that questioning your positions makes you uncomfortable, I shall refrain from responding to any of your future posts.

Bill,

You notice that many of us don't respond to these kinds of posts anymore for the same reason.
shutup.gif


Seems like if any of us disagree we are either "off our meds" or our BP is sky high, it never seems to be just another opinion to be considered.

But that's just my opinion.

Framerguy
 
Bob, I hope you don't mind me sharing this.

In Bob's class he taught how to track actual cogs using that worksheet that your POS prints out. Beside all the bogus fanciful numbers that the POS spits out, write actual numbers from the suppliers invoice. If you ordered length then write exactly what the vendor charged you. If you BOUGHT a matboard, then write that price and add on glass and foam prices directly on the worksheet.

Now that you have some real actual meaningful and not theoretical numbers, you can quickly and easily figure cogs. Then you can evaluate exactly what is right and what is wrong.

I did that just this morning and found one invoice had a cogs of over 45%!?!?!?

Guess why? I ordered 9' and got 18'. This was a canvas only and I didn't have any mats or glass to "pad" my COGS. So you can bet I have a plan to battle this phenomenon next time.

I don't use a sliding scale and shutter to think how much worse this would look if I did as this is a "nicer" moulding. So I can tell you from real life that what Bob mentions is accurate.

There is no theoretical spreadsheet that will yield this type of accurate information.

So perhaps the best way to see into the future is to look into the past. Perhaps a spread sheet with some actual past numbers on them will help to understand markups for the future better.
 
I apologize to everyone if my “spreadsheet” post seemed confrontational. I truly did not intend it to be.

Unfortunately, I don’t have a POS system from which I can easily extract real life situations, so I am forced to try to understand stuff like this using theoretical examples.

I was simply trying to understand the posted numbers of 40%, 42% and 48%. From my understanding of CoGS, it is most commonly expressed as a dollar figure, but when it is used as a percent, it is calculated as a percent of sales.

If I understood the initial premise, and if the calculations are correct, when, using the initial figures, the CoGS is divided by the retail sales, I arrive at 23%, 24%, and 27% – nowhere near as shabby as the 40%, 42% and 48% suggested above.

I just wished to know what, if anything, I was doing wrong.
 
Sounds to me that the real problem is suppliers sending more than is ordered leading to excess inventory. Everyone needs to take an approach that works for them. I tend to agree with Jim's approach. It makes sense to me. I don't spend percentages; I spend dollars. If the percentages go down but the dollars go up, where's the problem?
 
Hey Bill-Let's make this a "theoretical" application and suggest that you had but one sale for the entire month and it was the infamous $5/ft mldg where you ordered 11ft (because you charged your client for 11ft) and received 19ft

And, let's agree so far

Then we know that you charged the client $195.00 and we know the invoice total was $95.00

Still in agreement?

What was your margin for the month?

What was your Gross Profit for the month?

How else would you interpret this sale?

I think what is wrong here is that we aren't intersted in suggesting a flaw in the markup scales, but rather in making a point solely to disagree

Now,if anyone agrees with Bill's computations feel free to use them. It assumes too many things completely out of norm

Certain items bought in bulk, do indeed carry a "what you use" cost basis. You buy a box of glass you don't assign the entire cost of the box to a single workorder

And, you buy a sheet of suede matboard and charge based on an 8x10 used, that is a quantuum leap of faith that the other 15/16th of that sheet will be used completely. The same with mldg.

Let's assume that you ordered 11ft, but rec'd 12.5ft. There is no way you will ever use that 1.5ft is there? Do we really want to "add" that 1.5ft as inventory and only "cost" the 11ft?

Bill-You are entitled to your opinion, but if it is wrong, then it's my "entitlement" to express my opinion, too, isn't it? If you suggested that masking tape was a prefered method of hinging valuable artwork, ansd somebody disagreed would that be because they were "uncomfortable"? Or,perhaps because it was just flat wrong

The members may agree with you or with me

So, please find the method that makes you feel comfortable
And, Bill,on a more personal note, I'll be happy to exchange ideas privately with you off-line and I'll share what I can. This isn't meant to be confrontattional at all,but I am really concerned that some poor framer might see some of the conclusions and use them as practice

I hear from framers often with responses similar to Jay's situation. It is important that this type of information is made available; it's up to the wise framer to use what they can
 
Originally posted by Bill Henry-:
Since CoGS independent of sales, how did you arrive at those figures? And, expressed as a percent, a percent of what?


Bill-
I wouldn't say that COGs has to be independent of your sales-but that's a discussion for another thread I think (search "buying smarter")

Profit margin is expressed as your cost of goods divided by what you charged. So, Bill is getting 40% by dividing $95(what he paid) by $236.50(what he charged) I think everybody desperately wishes that they could keep a 77% profit margin! I have the same need to work out the numbers for myself that you do. So there you go! You and Bob seem to be having the old "toe-may-toe" vs. "toe-mah-toe" arguement. You are both saying the same thing, just doing the math differently.

Something that might make this hit a little harder is to figure what your ACTUAL markup is vs. the markup you charge the customer. Using the model of $5.00/ft yadda yadda... Your actual markup for the moulding after paying the bills(assuming you can't use the extra 8 ft. later) turns out to be 2.5x and not the 4.3x that the computer spits out. That really made my heart jump!
Click to expand...
 
Hey Warren-For clarity, the $198.00 retail value was based on 11ft calculated at the sliding scale discount scale. The "potential" retail value of $236.50 was based on a more "uniform" multiplier

Big difference

For clarity, my disagreement with Bill's analysis was to only allocate that portion of footage actually used vs what he actually paid.

Another Big Difference

I wouldn't have any problem with his analysis if he bought a 100lb bag of "toe-may-toes" knowing that he will use one on this salad and then 5 minutes later, another on a sandwhich and so forth

But, with that remaining footage it may never get used, it may get cut up into a readymade at significantly reduced retail

The another scenario would logically be that he recieved 12.5ft and used 11ft, what becomes of that 1.5ft

I think that difference is as different as night and day

We really make this argument so convoluted by attempting to allocate so many theoreticals

Bottom line: Nobody I knows does Monthly total Physical Inventories (very few do yearly's). That might be the only time that theoretical application becomes a practical exercise. the rest of it just is fodder for fruitless exercise like this when it proves virtually nothing

We are both saying the same thing?

Then I am doing a horrible job of explaining myself (LOL)
 
Am I the only one who's amazed at how inefficient the premise of this discussion is at getting a picture frame to a customer. Any customer being charged for 12.5 ft of molding for a frame that only needs 10 ft because that's what the supplier sent in response to a 10ft order can reasonably argue that he's being overcharged. And he is. Certainly Bob's argument implies that if the retailer could be certain of getting the number of feet needed for the frame and no more, he might be able to charge less for it.

What if the supplier sent 17 feet for the frame? Would i be justified in nudging my price to account for the extra 7 feet I'll probably never use? The solution, of course is not to order small, inefficient quantities of molding. If a framer ordered 50 feet of molding and at the end of the year only sold, 43 feet, the extra 7 feet would have been spread out over several jobs rather than having been charged to just one, but even if charged to just one, the waste it represented would be a much smaller percentage than if only 10 feet had been ordered.

The real problem is the inefficiency involved in not stocking what is being sold. I'm frequently asked at parties why picture framing is so expensive. I explain that a framer has several choices in ondering molding: list, discounted from list, and chop. Most framers order chopped frames and pass the cost along to the customer. That explaination about covers it.

Jim Miler has pointed out to me that my gross sales are several times greater than the average frame shop's, and he's right. How did this situation come about? By selling more frames for less. Lower the cost of a product and sell more of it.

Instead of relentlessly trying to squeeze more money out of fewer sales, I'd suggest that everyone in the industry would be far better off trying to lower costs to capture more sales.

It's not that difficult. We started out in a 1200 sq. ft. shop stocking everything we sold; we didn't order our first chopped frame until we'd been in business 24 years and now we do about 6% of sales in chops, max and we discourage those by telling the customer that what we stock is a much better deal. And we're in a small market, a "backwater", according to _Time Magazine_. How much would 50 feet of a 150 different, good quality patterns cost? Not that much, probably around $12000. That's not a lot of money to have invested id stock that you use to fabricate the final product. What does the inventory in an average up scale dress shop cost? And they can't change the sizes of the dresses.

Just about everyone who's posted here has mentioned how he can come up with outstanding designs, so it's not much of a push to suggest that each could identify 150 sure fire patterns. There's no question that if you're going to stock molding you have to know what to buy. But, if you don't know what's going to sell, why are you in the business in the first place?
 
Warren most of us understand what you talking about. Most of us employ it in some small degree. However I would ask which came first, the chicken or the egg.

I pray this doesn't have an air of arrogance or "the grass is(was) greener" mentality but many built their business during a different time. That business has certain stability to it that wishing or well-bought moulding won't douplicate. I could expand on this but I’ll just hush for now.

It’s not a stretch to imagine how I would be bankrupt and out of business before I could sell $12,000 in moulding. That’s not to say that I'm not trying. Until then I have to learn to operate with these inefficiencies. It's just a different environment to operated in these days and I know because I remember seeing dad's business during the "good ole days." This aint them.

[ 05-24-2006, 07:47 PM: Message edited by: Jay H ]
 
Warren is exactly correct and it strengthens my point about Buy Right to sell Right

Warren and I agree big time that the worst (inefficient) ways to buy are short bundles and chop

And, to play into the vendors mentality of a sliding discount scale further amplifies that inefficiency.

May I suggest that you look for some opportunities to follow Warren's plan, but do it on Jay's scale. Everyone can buy a few boxes to get started if your objective is to try and grow. With the agrressive pricing (and greater margins) now available, it makes this entire argument moot

And, for goodness sake, throw away every single "mfgr" suggested method of pricing
 
I am beginning to understand my confusion.

I was attempting to calculate the %CoGS from the CoGS (in dollars) divided by the retail sales using the generally accepted, CoGS = beginning inventory plus acquired inventory minus ending inventory. So, for the examples given at the beginning of this thread, I stand by my assertion that the %CoGS is 23%, 24%, and 27%.

I am unfamiliar with the accounting term (but I’m pretty certain that it is not CoGS), but it appears that the “%CoGS” examples given in the initial post came from taking the acquired wholesale inventory and dividing it by the retail sales, which is, essentially, the reciprocal of a markup. I’ve never heard of that calculation being used before. My mistake!

I guess I was expecting my pizza to be made with cheese rather than tartar sauce. It just didn’t taste right to me.

“I can see clearly, now, the rain has gone …
De dum te dedump te,
… “

I’m still not ready to abandon my sliding scale quite yet, though, but I’ll readily give a “psssthhh” to Larson-Juhl’s.
 
Originally posted by Bill Henry-:
...generally accepted, CoGS = beginning inventory plus acquired inventory minus ending inventory.
Click to expand...
The difference being that Bob et al are saying that there is nothing left, because you can't expect to sell the extra 1.5 feet of moulding, or the extra 5' or 9'.

That's why people like Warren don't buy short length and we strongly discourage others from trying. Buy chop if you must, or length if you want to stock it. Just my opinion.
 
Originally posted by Warren Tucker:
...Instead of relentlessly trying to squeeze more money out of fewer sales, I'd suggest that everyone in the industry would be far better off trying to lower costs to capture more sales..

It's not that difficult...
Click to expand...
Yes, Warren, it is that difficult. To review previous conversations...

1. Lower price does not necessarily earn more orders in many markets. Smarter marketing & merchandising often works better.

2. Lowering prices without achieveing significantly more orders results in lower profits, gross and net.

3. Buying more inventory without achieving significantly more orders results in an inefficient use of working capital.

4. For most of us, buying more is no assurance of selling more, regardless of cost savings. If it were, we would all be as successful as you are, Warren. Instead, most framers who subscribe to the buy-more-to-sell-more philosophy end in bankruptcy.
 
Jay, you're too young to remember, but when Toni and I opened the Frame Works, Jimmy Carter was president and the country was experiencing arguably the worst economic conditions since the depression. The economy was dead in the water, stagnant water at that. Not only was the economy going nowhere but inflation was roaring out of control (by the end of 1979, it was over 13%!). Mortgage rates and the prime rate were over 13%, too. Unemployment was moving to over 7%, too. Stagflation, the economists called it. Compared to that period, we're enjoying a halcyon economic environment.We were lentgh only framers then and we made it through.

Good grief, Jim, if you actually believe that "smarter marketing and merchandising" can often trump lower prices, you and I occupy vastly different places on the rational plane, if you're on that plane at all. All I can hope is that no one takes that point to heart and tries to employ it. That kind of thinking is much more likely to lead to bankruptcy than relying on low prices.

If $12,000 seems like too much, how about just 50 feet of 80 patterns, sure fire patterns, at an average of $2.00 a foot for $8,000? Surely that's doable. You could buy the molding from 4 different companies and should get it for 25% off list. When we started, we marked up molding 3x plus 10% to cover freight. A $2.00 a foot molding at 25% off list would sell for $4.50 + .45. It worked, and we didn't go bankrupt. How about 50 feet of 50 patterns. Make the first orders 1,000 feet or more. In the beginning order 50 per pattern and never place an order under 500 feet, strive for 1000 ft. orders.

Heck, if you sold the molding for 3 times the list price, not the discounted price, plus 10%, you'd still be well below someone ordering chops and still comming out like a bandit. Your price for $2.00 a foot molding would be $6.30 while a chops retailer would be selling it for $12.00 (?).

Remember, too, stocking molding isn't the same as stocking retail merchandise. You can fabricate the molding into frames of any size. Stocking ready mades is more like retail merchandise. I can honestly say, we've never lost a dime stocking molding; even the real dogs (and everybody makes a buying mistake) we've been able to sell during our infrequent warehouse sales.

Once you get in the length buying mode, opportunities begin to present themselves. We frequently buy "specials" for under $1.00 a foot that we can sell at $6 to $8 a foot. There is a lot of molding floating around out there if you're known as a length customer.

My experience is that molding suppliers will extend to their best customers the maximum discount no mater how large a particular order is. In spite of what Jim would have me believe, I'm sure that increased buying and selling through aggressive pricing leads to many opportunities not open to low volume, high price shops. It's better for the framer and his customers, too. It's also better for the molding manufacturers because they move more molding at the lower prices. And they know it. High price, low volume retail sales (no matter how well marketed and promoted) are not nearly as attractive to a manufacturer as low price, high volume sales are, and they reward the volume seller more than Jim might think. 40% off list isn't unusual for a shop moving a lot of molding.

We did have a marketing ploy when we started: frame it yourself, but it wasn't the customers doing their own framing that allowed us to sell low. It was buying in length. It was actually cheaper for us to do all the framing and deliver to the customer a finished package, especially after the advent of the wonderful Cassese light industrial v nailers.

Finally, I'd like to point out to Jim that the most "efficient" use of working capital is probably making your operation more efficient; ie, getting your product to the customer at the lowest price possible. Frankly, "working capital" is a phrase that Toni and I have never used and a concept that we've really never considered. For micro businesses like ours, all this business school talk in mostly irrelevant; even in large businesses it's probably more jargon than meaningful expression. But then my degrees are in English Literature, not business.

I might add, too, that we experience a lot of problems with the few chop frames we now sell, enough problems to make us very happy that chops aren't a big part of our business.
 
Not to argue Warren but I wasn't referring to the economy. I was talking about the newer competition of the BB's. I think that topic has been hashed out times 10 and I don't care to go over it again.

HOWEVER, just the other day I was watching TV when Ben Franklin had a really great looking commercial advertising "FREE FRAMING". No I'm not joking either.

You didn't deal with megga advertisers like new shops do. I don't get the feeling they bother you now either because you have a massive following who are already aware of your prices and quality. Heck a new shop has NO customers. I don't think "Really great prices" will drag them in droves. In fact it would be but a whisper in a room full of screaming.

I do agree 10000% that is probably a great long-term goal but foolish if attempted to quickly.
 
OK, so as weird as it sounds, I agree with Jim and Warren.

The biggest cause of small business failure I have personally witnessed it "lack of capital," or, put another way, they don't have any money to pay their bills. This occurs two ways ... one, they just don't have enough to start with. Starting on a shoestring may work sometimes, but boy you better get very lucky! two, and this speaks to Jim's point, they buy too much inventory too fast and don't sell it fast enough to collect money to pay their bills. Warren, it happens over and over!

But, NOT buying AT LEAST a good amount of inventory so you can turn at least some "low cost" (maybe lower than low) jobs seems to be an equal recipe for disaster. I am still overcoming the "he looks like the most expensive guy in town" problem which I exacerbated by not having any low cost options for the first year I was open!

Warren, to Jay's point ... I think the public "awareness" and "longing" for our product is much less than it was then. many of them have their attention elsewhere. They have many more options than they had in those tough times. At least during the Carter administration IF they wanted wall decor the frame shop was a logical place to turn. We aren't right now.
 
You're right, Jay; I hadn't thought of the BB competition tilting the field; You're right, too, about "Really Great Prices," but "The Frame Outlet" has been very successful in drawing cost conscious customers. As I mentioned Frame It Yourself was very successful in drawing in customers. We still offer it at the Outlet, and I'm sure that's a part of the Outlet's appeal.

In Wilmington, at least, we've noticed that a lot of our customers know each other. Show one of them great ptices and the word gets around. I've always thought longevity was a huge factor in good sales, longevity coupled with consistently low prices.

Any new business without a huge marketing budget has got to manage to survive long enough to get the word out. I can't emphasize enough how important I feel that that message is "outstanding value" (good quality and good, efficiency driven low prices) I'd hate to think of the consequences of hanging on for a few hard years only to earn a reputation as being expensive.

I remember when I first went into Bobby Havens' frame shop in Charlotte (it was a hugely successful shop on Selwyn Ave in a very affluent section), and there were only about 50 samples on his board. They were top quality moldings, mostly Ivy, if I remember correctly. He stocked them all and sold them at very good prices and was successful. I decided then that was how I was going to run my business. It paid off. Bobby's brother, Brent, learned from the same source that I did and he's doing very well in Charleston, better than me, anyway.

Believe it or not, customers know when they've been screwed. I think that's a big reason that Michael's hasn't been much of a problem (our sales have been going up each year since they opened); we get numerous comments from our customers who've tried them out (everybody shops around). Believe it or not, but several have expressed outrage that Michael's only sells CC glass and doesn't offer regular; seriously, my impression, and it's only my impression, is that that policy is hurting them.

We sell 20 times more regular glass than we do coated glass. I personally don't use it, and I can't honestly think of a reason why anyone would other than in rare cases, a case so rare that Toni and I haven't used any of it on our own art and we have an extensive art collection. We have some expensive art, but none of it is "for the ages' and with regular glass it'll last as long as we want to look at it. Toni is in the process or replacing a painting in our downstairs den that's been loaned to three shows; it's going in a closet. My point is that most of us will get tired of a piece long before it has noticable fading.

We sell coated glass (our supplier says we're one of his biggest customers), but the customer has to ask for it. We just reframed a watercolor that Christies valued at around $20,000. This time we asked the customer if he wanted UV museum glass.He said "h*ll no, it's been under regular glass in our family for 60 years." People are strange.

I think this emphasis on expensice coated glass, museum quality mat boards (for art that's definitely not museum quality - none of mine is- is hurting the industry. It makes for an expensive product, perhaps a needlessly expensive one and maybe customers are figuring this out.

I guess we're just pedestrian framers but I can't remember anything we've framed, and we frame a lot of pictures, that warranted museum treatment. Maybe that watercolor, but the owner would have none of it. Sure he wanted acid free materials but rice paper hinges? He just laughed at the suggestion. His family probably spends $30,000 a year with us so we didn't presume to "educate him." In his place, I wouldn't use the hinges, either. We did make a copy of the painting for his son, though, in our digital imaging lab and framed it, too, just like the original). It was well into the public domain; I would have anyway.

Ah well, I'm rambling ...
 
Warren, one point I have to make regarding your previous post ... you questioned Jim's statement that "smarter marketing and merchandising" could work.

Here in my neck of the woods, M's is doing quite well. More than double my revenue in a year. My custoemrs (that have price compared) have told me that I am MUCH less expensive in many cases for superior product. Yet, M's continues to draw more customers and more revenue dollars. How? ... "smarter marketing and merchandising!"
 
Originally posted by Warren Tucker:
...Good grief, Jim, if you actually believe that "smarter marketing and merchandising" can often trump lower prices, you and I occupy vastly different places on the rational plane, if you're on that plane at all. All I can hope is that no one takes that point to heart and tries to employ it. That kind of thinking is much more likely to lead to bankruptcy than relying on low prices...
Click to expand...
Golly gee, Warren, I actually believe that "smarter marketing and merchandising" is a concept that works for some businesses. Let's see if I can think of an example...

1. Women flock to the salon two doors down from my store to spend $100 for a haircut.

2. Camrys and Accords are the most popular cars, and last time I looked, they cost more than similar Chevys or Fords. Yugos may be the cheapest, but not the most popular cars.

3. Ruth's Chris sells a lot of steaks.

4. Nordstrom, Neiman Marcus, and Sax Fifth Avenue are successful retailers.

5. Lunch at the mom-n-pop diner across the street costs $4.50. A similar lunch at McDonald's is $6.00

6. The Wine Guy down the street says he sells more $20 wines than $10 wines.

7. What woman wants to buy cheap perfume?

8. Wood picture frame mouldings are still more popular than plastic mouldings at 1/4 the price.

9. Larson-Juhl, our industry's largest supplier, does not have the lowest prices on hardly anything they sell.

If all things are equal, anybody would take a lower price -- no doubt about that. But all things are not equal in products such as framing, food, clothing, cars. When there's a difference to be sold, marketing and mrchandising may be a better way to sell it than looking for ways to cut the price.

Warren, you and the craft stores may succeed with a cheaper-framing-is-better business philosophy. But it is not the only business philosophy that works in our industry.
 
If price was truly the only motivator for purchases, we would all live in manufactured homes that you need to remove the wheels from.

There is a neighborhood near my store that the entry level home is 1.1 Million dollars. I have 4 customers on one street.

What fools those people must be. Surely they could have found something cheaper.

And to add to Jim's list, what about Starbucks. The new coffee at McD's is just as good for 1.39 a cup. I wonder which company sells the most?

I'll stop now.
 
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