We are way too obsessed with markup

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Paul Cascio

Paul Cascio

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I really believe that many indpependent framers have become too obsessed with markups, while devoting far too little attention to building thier customer base.

Prices are dictated by supply and demand - market price. Prices are not determined by what our expenses are. Customers don't care if we have bills, because they have bills too.

Many of us spend way too much time micro-calculating individual proifit margins. Some even run to the calculator or POS after each sale to count their "winnings."

Your success is ultimately basesd on your ability to make sales, not your ability to calculate your expenses down to the penny.

If you want to make money, stop playing accountant and start playing marketing manager and sale professional.

Let's focus on building our customer base. That's where long term profits will be come from.

And let's stop conceding customers to big box stores. Go after that first time customer who only wants poster framing, because if you lose them today, they ain't comin' back.

Wake up folks. Get your fingers off the calculator and focus on building your customer base. More customers = more sales = more profit, today and in the future. Capture the customer and stop try to make the few you have pay all of your bills.

Sell. Sell. Sell.
 
Paul, If we don't pay a little attention to the bottom line we won't be around for the fight.

I agree that we need to market better as an industry. I am already sending out 40k postcards 9 times a year. But I need to keep doing more in the way of inshop marketing as well as drive by marketing.
 
God gave us two eyes so we need to focus both of them.

It is true that we need to expand our customer base. However, if we are losing money and double our customer base (sales) while ignoring profitability we could very well lose twice as much!

:icon9:

Dave Makielski
​
 
Paul-Do you think that more framers go out of business because they don't have enough customers or because they don't have enough profit?
 
Bob, I am thinking customers, please don't slap me if I am crazy. I know many folks have issues with pricing, but many seem like they could and expect to handle more work.

PL
 
Profit makes the world go 'round

Bob Carter said:
Paul-Do you think that more framers go out of business because they don't have enough customers or because they don't have enough profit?
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Oooo! Oooooo! I know this one! :thumbsup:

The correct answer is profit dollars, because:

1. A business could have lots of customers and no profit.
2. A business could not have lots of profit and no customers. One customer might be enough if she buys enough often enough.

If a business earns enough profit dollars to grow and prosper, then the customers are assured. However, the profit dollars are never assured and the issue of profit always needs careful attention.
 
No fiar Bob - Trick question

Bob Carter said:
Paul-Do you think that more framers go out of business because they don't have enough customers or because they don't have enough profit?
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Wrong Jim. No prize for you. If you have lots of customers you make money. No one that goes out of business has lots of customers.

They go out of business because they don't have enough customers, which results in not having enough profit. Right Bob?

You can only suck so much profit out of any given job, or customer. The not-so-secret, secret formula is to build your customer base.

Let's face it, the markup on framing is so high that you won't lose money on any job unless you have two left hands and no brain. Capture customers! That's how you build long-term success in this business.

Throw that calculator out (unless it's a Casio, of course) pick up the phone and go get some customers.

If you ain't makin' money, you don't need to act like an accountant.
 
I know you didn't ask me Bob................I think it is a combination of both. Even if you have a way to attract customers you can do yourself in if you are not making a profit. So, you need to have the bodies thru the door and be able to sell to them at a profit. A lot of shops don't want to offer lower end products because of their image and I think that hurts them too. Gotta have what they want and need on hand to sell to them so they don't go up the street. In other words, Think like a retailer.

I
 
This reminds me of a story I once heard...


Two guys went to SC to buy a pickup truck load of watermelons. When they got there, the farmer wanted $2.50 each. They kept negotiating him down until he agreed to let them have them for $2 if they picked their own. So they went to work picking and loading the truck.

Next day bright and early they were setup at the entrance to the local flea market with a sign that said "Watermelons $5". After 2 hours they had not sold a single melon so they dropped the price to $4. Another hour past and they dropped the price to $3.

Finally, the one guy looked at the other and said, we have got to cut bait and sell these things for $2. So they changed the sign again and the next thing you know people were standing in line for the watermelons.

When the last one was gone, Jim Bob looked at Leroy and said, "Next week we need a bigger truck".
 
Kathy has it right. Ever heard the saying, "Customers are the lifeblood of a business."

Stop micro-managing. You don't need to be an accountant, you need to be a vampire.
 
What kind of truck were they driving Jerry?

Paul, do you know of some pricing scheme that would make it impossible for me to NOT make money?

The problem with not watching COG's (which is what I think you're really talking about) is that death can be very slow. Slower shops are probably most in danger of a slow death. My wife and I had this discussion the other day and she disagreed but I would think that a busy shop with proffit problems would recognize a problem and locate it quickly. A slower shop might be bleeding into the floor but never find the wound, or even know they are cut.

I gotta say Paul that I don't dissagree that we may over analize this more than we need to but I can't say that just forgeting about it is any wiser.
 
I agree with you Paul. I think getting them in the door is the secret to a successfull business!


We should be checking our pricing yearly or when the supplier informs us of an increase, but other then that, we should be totally focused on Sales!
Especially if you have a POS. You do your up dates in less then 5 minutes every month. Anymore time then that is a waste and should be used on customer service.


I feel inspired to call some customers and work on some advertising!

Go Paul!
 
The Formula

Jay H said:
What kind of truck were they driving Jerry?

Paul, do you know of some pricing scheme that would make it impossible for me to NOT make money?


I gotta say Paul that I don't dissagree that we may over analize this more than we need to but I can't say that just forgeting about it is any wiser.
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Yes Jay, anyone of them will work. Pick one.

Any of them will fail too. That's because the focus needs to be on capturing customers.

Here's the formula:

1. Cut your own frames.
2. Get as many people to try you one time as quickly as possible. Build your customer base. You can't have repeat business, until you've had business, and you can't have referral without a referrer.
3. Learn and use professional sales skills. This is a sales business.
4. Develop "Custom Framing Connisseurs (sp)." Introduce your customers to nicer and nicer framing on each visit.
5. Then, pick any popular pricing scheme that our there and it will work.
6. The markup on framing no matter what system you use is high enough that it won't matter.
7. Repeat #2
 
I have to agree with Paul …..

Mark up is only one of the many details that makes a business…along with quite a few other things…..

The thing that is going to drive any business forward ........... are existing customers….and new customers

No customers = No sales = No Business………….

It as old as the oldest profession in the world is……

Mark up will only fuel your margins…….

Customers will fuel your business growth………..
 
Way to go Jenn!

J Phipps TN said:
I agree with you Paul. I think getting them in the door is the secret to a successfull business!


We should be checking our pricing yearly or when the supplier informs us of an increase, but other then that, we should be totally focused on Sales!
Especially if you have a POS. You do your up dates in less then 5 minutes every month. Anymore time then that is a waste and should be used on customer service.


I feel inspired to call some customers and work on some advertising!

Go Paul!
Click to expand...


Jenn, you reminded me of one more key to success. Stay off of the internet.
 
So, then it's okay to obsess over getting customers in the door? That traffic alone will be sufficient? (and, this is from someone that obseeses over traffic)

Or, do we need to ensure that our prices are "right" in that margins are balanced to ensure traffic? (and, this from someone that obsesses over margins)
 
Ya, Bob, I don't see what one thing has to do with another. They seem mutually exclusive to me. Its like suggesting that mat colors don't matter as long as it's the right frame.

I know for fact that #5 and & #6 is just wrong.
 
Well I would think that any half backed businesses person would keep a measure on margins along with quite a few other business indicators….and the greater the margin is all the better………

The key to any successful business is profitable customers……….you can have the best margin in the world…………… but if you haven’t got customers forget it…..
 
Of course we need to know how to price. I also want to know what my "Breakeven Point" is each month. But calculating this stuff is a once or twice a year task, it shouldn't be the national past time.

Has anyone ever calculated just how inexpensive the materials are for low end framing?

Pick any prcing system. It works.

You want to know how much to charge? Throw your spreadsheet softwre away and go shop your local AOS. There's your benchmark.

Bob, if one were to "obsess" over marketing and sales, I would consider that a productive activity. Pour that much time into repeatedly calculating how much to charge for a frame however, and you end up on antidepressants.
 
Hey Paul-I think either you or I discussing the ills of obsessiveness might be like Bill Clinton touting abstinence
 
Bob Carter said:
Paul-Do you think that more framers go out of business because they don't have enough customers or because they don't have enough profit?
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Are we talking gross profit or net profit?

In Bob's question above is it safe to assume that "enough profit" means subnormal profit?

If so, here is how subnormal profit is defined inWickipedia:


http://en.wikipedia.org/wiki/Subnormal_profit#searchInput
Subnormal profit, an economic term of profit, occurs when profit fails to meet the level of normal profit.
... a firm will continue producing whilst making Subnormal profit, as long as their AVC (Average Variable Costs) are covered.


So, if you are not making enough profit you are profitable and you will stay in business. It really doesn't matter how many customers you have ...you are still profitable.



However, if you are not profitable, you will be out of business without a continual infusion of cash. One solution might be to profitably increase your customer base. However, increasing your customer base requires more resources in the initial stages to market and procur customers and in the continual phase to put into being the necessary employees and facilities to serve the increased customer base ...economists call this "spontaneous financing".




If you are even marginally profitable now and decide to build your customer base, but do it without eyes open to profitability, then you quite likely will sink the ship and lose your business.



Obviously both need the attention of the owner of any business.



Dave Makielski
 
Paul, show us your better reasoning.

Paul Cascio said:
... If you have lots of customers you make money. No one that goes out of business has lots of customers.
Click to expand...

That's a very dangerous strategy. Having lots of customers is no assurance that a business will make money. In theory, a good way to get more customers would be to spend too much on advertising, cut prices, and lose money on every sale, but you wouldn't recommend that, would you?

There was a sandwich shop down the street that advertised the cheapest sandwiches in town -- and they were good, too. He was always busy. He hired cooks. He bought food. He advertised like crazy. He was, by all appearances, very successful. The customers were coming is, the cash register was ringing, and the cash was flowing. Trouble is, his costs exceeded his sales. One day he was gone -- bankrupt, because he failed to earn enough profit dollars.

Framers have been cutting their prices, buying unwisely, building lots of frames for lots of customers, and living like paupers for more years than I have been around. That's a bad strategy.

That does not mean we should price ourselves out of the market, nor should we obsess about markups, as you noted in opening this thread. Raising prices blindly might increase profit dollars temporarily, but growth goes away in that scenario -- another bad strategy.

The truth is, there has to be a balance. A successful independent frame shop owner buys right, works smart, hires & supervises well, advertises effectively in order to attract customers, keeps the store attractive and merchandises intelligently, contains peripheral costs, prices fairly according to the market, and makes darn sure the profit dollars are on the bottom line.

Some customers are required to earn profit dollars, certainly. Growth requires ever more customers, spending ever more dollars on what we sell profitably. But no number of customers could save a business owner who fails to earn profit dollars.

If the bottom line of the Income Statement is vacant, then all those happy customers will eventually have to find yet another framer who thinks getting more customers is the key to operating a small business.
 
So far, the star pupil is Jim Miller-he "gets" it the best so far

My honest opinion is that we need to wear many hats and everyone of us has to be able to pay attention (or obsess) to a high degree of efficiency on as many areas as possible or delegate those areas to those capable of understanding what the heck it is they are obsessing over

How many framers "obsess" over a microscopic piece of lint on a black uede mat? Is that "obsession" a bad thing?

Neither is driving clients through the door

Neither is ensuring the margins are protected to be profitable

The real answer is this is one of those chicken or egg deals

I must say that I find it a little unhealthy to think that one is better than the other and that in truth if many (or any) spent more than an hour a week consistently on either factor (productively, that is) that they would see immediate results

I would venture to say that most of us spend much more time on The Grumble than either of those two other issues

If we really want to talk about unwise obsessions....

Paul and I in business-Not a chance. We are both opinionated entreprenuers used to do doing things our way-horrible mix. Besides, it would just be one more person for my wife to have to tel to get off the computer and get some work done. It's way too easy for guys like Paul and I to tell others what to do then to be told
 
I understand what a balance sheet is....and all the other financial elements of a small business.....I also understand what a negative bottom line is and what can happen to a business suffering from this situation............but in reality a small cash business...like a framing shop or a sandwich bar can run for a very long time without making profit or very little ....by cutting it,s operation very fine...........in fact it is virtually impossible for a cash business with enough customers coming in the door to go out of business ......asides from fraud been involved... ............lets not mix up cash flow with profitability....

For the life of me I’m trying to figure out how you guys have jumped from what Paul has said about getting customers in the door.......and a business going bust.......from my read of this thread Paul has suggested nothing of the kind.............

I think some of you are taking what Paul said and making 2+2 =6
 
J Phipps TN said:
Can you imagine if Bob and Paul went into business togather!

What a hugh success that would be!
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I have great respect for Bob and consider him a friend. But candidly speaking, we're probably both self-employed because we enjoy making decisions, and working 20-hour work weeks.
 
As Dermot indicated, my position is that you can't make up for shortcomings simply by raising prices. This is especially true when we have unethical competitors using what are at best questionable marketing tactics.

We have already lost the better part of a generation of customers because we've failed to mount an effective response to the AOS framers. Raising prices is simply a short-term, and short-sighted, solution to a long-term problem.

Competing, capitalizing on weaknesses, lobbying for enforcement of applicable laws, and joining together to create a positive collective identity, rather than continuing to be known as "The Expensive Framers" is a much more effective response.

We're all consumers too. How do we respond to price increases from businesses we buy from? Do you ever go to a gas station on the opposite corner becasue it's a nickel a gallon cheaper? Do you shop at two different grocery stores to find a better price on boneless chicken breasts? Do you read Consumer Reports? Do you negotiate the price of a car, a house, or even smaller purchases? Chances are you do at least some of these things.

So why it that some of us think you can set prices based on anything but free market economics and your customers won't care? It just doesn't work that way. You need customers first. Then, you figure out how to increase profits by encouraging them to buy more, bigger, better and more often.

Otherwise, you are going to be working for someone else.
 
Hi Paul-Lest anyone think we disagree with each others position, I think we all agree that running a biz, any biz, includes a great blend of doing many things very well

If anyone assumes that I think raising prices (to protect margins) is a smart way to run a business either hasn't paid a wit's bit of attention or is a fool (or both)

In fact, I think the easiest way to keep people from NOT coming in the door is to have high prices. Want to build a better plan? Have a great pricing scheme that screams value on those items easily comparable; balance that with some truly great products in both design and quality where price resistance is minmal and buy very, very well to protect (and enhance) your margins

Buying well can mean negotiating favorable rates, but it also means not having layer upon layer of slow moving inventory. It can also mean doing simple things like buying wisely in terms of coupling orders to minimize ever increasing freight charges

And one of the key elements in determining those factors is consistently monitoring things like Cost of Goods

Obsessive? Guilty as Charged

I guarantee that I spend about an hour a week on it

A lesson I learned way back when about doing the daily requirements was that it was like shaving; if you didn't do it everyday, you'd end up looking like a bum

But simply to raise prices is just plain stupid

Like Paul says we are all consumers, too
 
If it comes down to be obsessive, I think tommorow I should open a store. I am a nut. Atleast over the last six months I have not got up at 4 AM to write notes down about ideas for business.

It is a first, but now that it is good, it may start again. The wife is not going to be happy.

PL
 
Jim Miller said:
The truth is, there has to be a balance. A successful independent frame shop owner buys right, works smart, hires & supervises well, advertises effectively in order to attract customers, keeps the store attractive and merchandises intelligently, contains peripheral costs, prices fairly according to the market, and makes darn sure the profit dollars are on the bottom line.
Click to expand...
Jim Miller said:
Very well said, Jim.
Click to expand...
 
Is this thread all in response to the flurry of price discusstion since LJ is about to raise prices? OF course we are looking at prices right now, thinking about margins, and doing the due diligence we must do to remain viable businesses, When a supplier whom too many of us are so (too) dependent upon raises prices, we need to pay attention. Then we can go back to marketing, sales, craftsmanship, and so on. Actually, we do it all at once and most of us work long hours.

Bob, as for Grumble addiction, I don't know about most of you, but I find the Grumble educational entertainment late at night after a long day of work. I'm too tired to work on anything serious for the shop--like next month's newsletter which is always a bear to get started--and I prefer a light Grumble read to mindless TV, which is also on in the background. Actually, I just sent off a corporate proposal after working on it for three days, so now at 10:30 I will again take a break and grumble away. I sometimes grumble while eating a sandwich at my desk during the day. Sometimes I chide myself and think I really should relax, but once a workaholic, always.
 
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