I’ve spent the last month at our home in Los Barriles, Baja Sur, Mexico. My U.S.A. and Mexico routines are totally different. I bounce out of bed at 6 a.m. at both locations. But my California routine consists of reading the paper, having breakfast and going to the office for the morning. Then some yard work and a bike ride. In Mexico I launch my kayak by 6:30 a.m. and put in about six miles (an hour and a half) of good paddling. This year I started fishing from the kayak and have had fun catching something almost every day. Then it’s breakfast and some projects around the house and yard. A couple of times a week I quad ride exploring either beaches or mountain areas. My work tapers a little, but don’t let this stop you from emailing and calling with questions, concerns or suggestions.
As I continue to travel the country doing consulting and workshops I am amazed by the lack of good showroom financial reporting. Too many wholesalers still don’t separate financial reports for their showrooms. This drives me nuts! Why would anyone invest money (in many cases a lot of money) in building out and promoting a showroom and then not do a specific showroom P & L and balance sheet? I’ll bet if those owners invested the same amount of money in the stock market that they’d be checking the investment on a regular basis. Why wouldn’t you do the same thing for that showroom investment? Yep, too many of you still mix up the showroom revenues and expenses with the local branch operation. This skews the real financial results of both the showroom and the branch. In several jobs I’ve worked on we discovered that the showroom was actually losing money when we put together an honest-to-goodness first class P & L.
In October at the annual DPHA conference in Colorado Springs I did a workshop on the subject of developing various financial benchmarks for showroom businesses. There were about 40 owners and managers in attendance. I asked the group if they wouldn’t like to have some industry benchmarks (I’ll explain in a moment) on various financial numbers and other pertinent showroom data. The response was a resounding YES! A benchmark would be an industry average on key data that you could compare against your showroom results. This would tell you if you’re above average, just average or not so hot in each of the benchmark areas.
Here are some of the various benchmarks that the DPHA group agreed would be helpful to them:
- Annual showroom revenues
- Annual gross profit margin percentage
- Annual operating expenses as a % of sales
- Annual operating profit (or loss) as a % of sales
- Total showroom people expenses
- Total dollars spent on marketing the showroom (advertising, promotions,
public relations)
- Sales per sq. ft. of showroom display space
- Total rent per sq. ft. of showroom space
- Average monthly sales per showroom sales consultant
- Percentage of total sales by customer category (plumber, builder,
homeowner)
- Return on sales ratio
- Return on equity ratio
- Quick ratio
- How sales consultants are paid – and how much
About 24 folks at the DPHA workshop submitted financial information from their businesses in each of the above categories. Now, 20 sets of numbers hardly establishes a benchmark - but it’s a start! More owners have indicated a willingness to submit their information. If we can get the total up to 100 companies we’ll begin to have some meaningful data.
DPHA’s membership consists of both wholesaler and independent companies - so mixing these two types of businesses would be like mixing apples and oranges. But maybe either ASA or this publication could try to develop benchmarks for wholesaler showrooms. ASA does an annual “Operating Performance Report” on the overall performance of their member wholesale companies. It’s a great management tool. Why couldn’t they add a section on showrooms? If you believe the idea of developing some meaningful benchmarks for showrooms makes any sense at all, email me and I’ll try to get something started.
Okay, I’d like to change gears just a little bit - but stay on the topic of financial reporting for the showrooms. If you don’t treat your showroom operation as a separate profit center you’re making a big mistake. You have to know what sales and margins and expenses are in order to know whether you’re making or losing money in that phase of your business. I do understand that some expenses are mixed in with a branch or home office. But I also know that it’s pretty easy to interpolate many of these “mixed” expenses (rent, insurance, utilities, etc.).
When I owned my business I liked to break out sales by as many categories as possible. Following is a list of only the sales revenue items that I would be showing on my P & L if I still owned my business:
- Plumbing products – plumbing contractors
- Plumbing products – builders
- Plumbing products – homeowners
- Bath accessories – plumbing contractors
- Bath accessories – builders
- Bath accessories – homeowners
- Door hardware – homeowners
- Door Hardware – builders
- Cabinet hardware – homeowners
- Cabinet hardware – builders
- Bath furniture – homeowners
- Bath furniture – builders
- Lighting – homeowners
- Lighting – builders
- Kitchen cabinets – homeowners
- Kitchen cabinets – builders
- Appliances – homeowners
- Appliances – builders
- Boutique items – homeowners
- Boutique items – builders
- Countertops – builders
- Countertops – homeowners
In addition to the sales numbers for each of these categories I’d do a GP margin percentage on each. What a great tool to know who’s buying what and how much you’re making in each area.
My expenses on the P & L would be broken out the same way. As an example: instead of one number for advertising I’d break it out by magazine, radio, TV, home show, etc.
And here are a couple more great financial tools:
In summary, the more financial tools you can develop and use to run your showroom operations the more successful you can be. You’ll know what customer categories offer the best return on investment and what products sell the most and make you the most money. You’d know where you have the most growth opportunity and profit potential.
I’ve helped a number of wholesalers and independents develop management tools and I’d be pleased to help you do the same. Just drop me an email!
