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
sell the unit for, minus your cost for the unit.
I will describe, in my terms, how to define your
cost elsewhere. (click
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 letís get inside. Look around as if you were a
customer entering for the first time. What is your first impression?
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
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
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 costís 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
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
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
Simply how long it took to assemble, test and adjust multiplied by
your shop labor rate
- 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.
overhead is rent or mortgage, light, telephone, and insurance.
Basically what it costs to open the door each day.
have a product that costs you $1,000.
(C = $1000)
shipping is $50. (S = $50)
Assume you have had the unit for 6
(IC = 6 x $1000 x
0.010 = $60)
Assume it took one hour and your shop rate is
(A = 1 x $40 = $40)
Assume a monthly
overhead of $3000 per month and assume you have $500,000 in
= $1000 / $500,000 x 6 x $3000= $36
cost now add up each element.
+ S + IC + A + OH = Total Cost of the unit
+ $50 + $60 + $40 + 36 = $1186
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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