Increased Profits
In The Showroom

Your showroom is the most 
profitable area of your business 

First, we need to establish what I mean when I say profit.  Profit is very simply the dollars you sell the unit for, minus your cost for the unit. I will describe, in my terms, how to define your cost elsewhere. (click here to go to product costs)  Forget percentages - in fact if you never hear the term as associated with wholegoods you would be better off. 

Now, back to the showroom!  Because this is the profit center of your business, you need to spend some quality time there.  First, go to the local mini market and get a coffee. Now, park your truck in your parking lot, and head for the showroom.  Actually, your "showroom" begins as soon as you set foot in the parking lot.  Is there such a clutter of equipment in front of your building that the entrance to the showroom is almost blocked?  Is the door to the showroom clearly marked? 

I can go on for an hour, but let’s get inside. Look around as if you were a customer entering for the first time.  What is your first impression?  Would you want to do business here?  Is there anyone to greet you?  Is there so much dust on the poorly displayed equipment that it must be years old?  I can show you how to improve the layout of that profit center, and make it look larger and more inviting.  I can work within your budget and floor space constraints to maximize your profits. 

Product Costs

Accountants have a way of making something, like knowing whether or not you are making money,  complicated.  You know, terms like "liabilities, assets, stockholders equity, gross profit, net profit" and on and on.  I assume they need all these terms and numbers to confuse their clients and the IRS.  Actually, all I want to know, is how much is in the checkbook, can I pay all the bills and is there anything left for me? 

This leads to a way I developed to determine how much a product cost’s so when I sell it I know if I made any money. In my simple approach here is how I determine the product costs.

Sum All of the Following Items

        C = Cost of Product

        S = Shipping Cost

        IC = Months in stock  x  C  x .010

        A = Assembly Time  x  Shop Labor Rate

       OH = C  /  Total Inventory  x  Months in Stock  x  Monthly Overhead

Explanation and Example

C  -  Invoiced cost

S -  Actual shipping cost (if any)

IC  -  Cost of inventory whether on floor plan or you financed. This is the cost of keeping the product in inventory.  If you had invested the cost of the product in the market at a return of 12%.  This is what you would have made.

A -  Simply how long it took to assemble, test and adjust multiplied by your shop labor rate

OH -  This is my factor of adding in a reasonable amount to cover your overhead. The auto dealers sometimes call this "packing". You can adjust this number as you see fit. However it is never zero.

The monthly overhead is rent or mortgage, light, telephone, and insurance. Basically what it costs to open the door each day.

Assume you have a product that costs you $1,000. 
(C = $1000)

Assume shipping is $50. (S = $50)

Assume you have had the unit for 6 months 
(IC = 6  x  $1000  x  0.010 = $60)

Assume it took one hour and your shop rate is $40/hr. 
(A = 1  x  $40 = $40)

Assume a monthly overhead of $3000 per month and assume you have $500,000 in inventory. 

OH = $1000 / $500,000 x 6 x $3000= $36

 

To Find "Real" cost now add up each element.

C + S + IC + A + OH = Total Cost of the unit

$1000 + $50 + $60 + $40 + 36 = $1186

 

Therefore the "Real" cost of the unit is $1186 and not $1000.  If you sold the product for $1300 your profit is $114 not $300.

 

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