This past April, I gave a presentation at the Closets Expo titled Magic #’s, and I was thrilled and humbled by your response. For those of you that were in attendance, I thank you for your emails, comments on the Whova App, phone calls, and the kind and encouraging words you shared during the duration of the Closets Expo in San Diego.
The response was such that I realized this information was valuable, and I offered to share it in writing for this article. However, as Shaun Oriold from Closet Envy in Burlington Canada told me, the real value in talking about numbers is “in the presentation, as some hand-holding really helps to explain what the numbers mean.” To that end, in this new era of Zoom, I will offer my “Magic Numbers 101” presentation via Zoom at the end of August. If you are interested in this free event, you need to email me at firstname.lastname@example.org, and I will send you an invitation.
Now, let’s dig in…this idea of Magic #’s grew over the last 34 years, and it has helped me to focus on what I think is important in my business. We have all heard the phrase “the rich get richer,” right? One of the concepts inherent in that phrase can be explained in a simple example. If you buy one valet rod for $30, have it shipped for $8, and sell it for $75, your profit is $37 or a 49.3% gross profit. So, if you sell 20 valet rods in a month and multiply this out, you would make $740 in profit with the same gross profit.
Here’s how that works
Let’s assume that the reason you buy the valet rod one at a time is because you only have the $38 to pay for it in advance of installing it in your customer’s home. Then you must wait to get paid for it after the installation is complete.
However, we all know that if we buy in larger quantities, we get “benefits.” Sometimes it is a better price, sometimes it is better terms, and sometimes it is free shipping. So, with the simple example above, if we can get free shipping and an additional $2 off the valet rods by purchasing them in lots of 50, then how would that affect our profit if we sold at the exact same price? The same 20 valet rods in a month would now cost us $560 and our profit would now be $940 with a 62.6% gross profit!
But this is only possible if you have the money to pay for it, thus the phrase if you are “rich” you get “richer.” Let’s help you get richer!
The easiest way to learn, track, understand, and see your numbers is to learn to use Microsoft Excel. In the Zoom Presentation, I will go through 10 spreadsheets that I created to help better see the numbers that I am talking about!
Let’s assume that you are a $1 million-dollar company and that your average sale is $4,000. This would mean that you install approximately 250 jobs a year. Now we know that most of our jobs include a valet rod, but what is the value of those valet rods? Personally, I feel that every closet should have several valet rods. So, using this premise, adding just one more valet rod to 30% of your jobs, you would end up with $3,525 extra in profit!
Another idea to consider is the standard 50% deposit you collect from your customer. Using the same assumptions of the average sale of $4,000, you would collect $2,000 for your deposit.
Now, let’s look at the reality…if your total material cost is 40%, this would equal $1,600. The labor that you would pay to produce, manage, and install is 20% of the sale price of $800, which leaves you “money out of pocket” by $400! So, the more you sell, the less cash you have in your business!
If you were to change nothing else except collecting a 70% deposit, which is $2,800, then you would have $400 per sale in your pocket to help pay for your growth. This option is similar to the suggestion that buying valet rods in lots of 50 would make you more money!
One final thought to consider is how a 5% price increase from one of your suppliers can affect your business if you do not immediately pass that increase on to your customers by raising prices.
These are just a few examples of the 10 spreadsheets that I will walk through in the Zoom presentation of Magic #’s 101:
What to Sell a Job For?
The Value of an Accessory (i.e., Valet Rod)
Sales Close Ratio and Why is it Important to Know & Understand
Cost per Lead and How to Analyze and Understand It
What is My actual Labor Cost?
What is the Cost of a Go Back or Mismeasure?
What is the Value of a 50% Deposit vs. a 70% Deposit?
What is the Impact of a small 5% Increase in Costs?
What do Credit Cards Really Cost?
What is a Sliding Average and How Can it Help me Understand my Business?
Have something to say? Share your thoughts with us in the comments below.