Contrary to popular industry belief, a 40% gross profit margin may not be the magical number that leads to the best bottom line in the kitchen and bath business. The correct number for a particular business may be significantly higher or lower. It really turns on three things: (1) a “market-rate” owner’s salary, (2) the operation’s overhead including a “market rate” rent, and (3) the owner’s desired annual return on his investment.
The first reason why a bigger top revenue line only marginally affects one’s bottom line is that more errors are made with higher sales volumes; so gross margins typically decline by a few percentage points. Secondly, variable expenses - like sales commissions and payroll taxes - increase with higher sales volumes. And third, more staff people are usually needed to support the higher sales volumes, adding to the overhead.
Sometimes a small kitchen is a reality, and that’s okay, but that doesn’t mean it has to FEEL tiny. It is very possible to create an airier feeling in a small space, while creating extra room with a few design hacks, AND still keeping style, personality, and functionality. In no particular order, let the wild faux-spaciousness tips begin!
John O'Reilly and Nora DePalma of NEXTGen sponsor O'Reilly DePalma discuss leadership and finance as areas they wish they knew more about before receiving their first promotions.
The business skill I wish I had for my first promotion was how to be an effective leader to build a high-performing team.
Management was the skill I most needed at my first promotion.
My first job out of college was in retail marketing with an international oil company. Anything and everything to do with service stations, from the refineries to the fuel pumps, that was the business.
One thing I learned early on in my career is that learning is lifelong. No matter what level of formal education anyone attains, it is just the start. I always keep learning because business is always changing.
More than likely, you've come up against ojbections from a client before. Maybe, more often than you'd like. But how you handle it can make the difference in ultimately gaining the sale, or not. Dale Carnegie has developed a powerful, structured response to handling objections and a few of the steps are outlined below.
Ten years ago Faith Popcorn, the futurist guru, wrote “what will make us buy one product over another is a feeling of partnership with the seller” … “that decency is not only the only way to behave, but decency can also be profitable” … and “we want to buy from a person … a person whom we trust.”
About eight years into the kitchen/bath design profession, I developed a different way of doing business that completely transformed my operation, producing results far beyond all expectations. This new sales process was predicated on four core marketing principles:
Having launched the kitchen/bath industry’s first buying and business development group in 1994, the SEN Management Team has had an opportunity to work with hundreds of design firm owners. We have analyzed their financial statements, studied their business models up close and personal, critiqued their operations onsite, and coached owners for many months on end …. and through both good and bad economic times.
Veteran Dealer Dan Luck to Join as Education Manager
Ah, yes. The familiar question. It is usually preceeded with "What is SEN Design Group?," however. After a great week at the Kitchen & Bath Industry Show in Orlando, FL, it seems appropriate to address the often asked question of, "What is a kitchen and bath buying group?"
For nearly 20 years, our Founder and President, Ken Peterson, CKD, has had a sought-after business management column in Kitchen and Bath Design News Magazine. Ken, who continues to be active in the company, now oversees education for SEN, and his daughter, Leah, began running daily operations three years ago as Executive Vice President.
Contrary to popular opinion, a bigger showroom is NOT always better. At least, not if you want your firm to make a healthy profit. It might be good for your ego, for your sales staff’s use to make a good living, and for your vendors who love having so much of their product on display there. But a bigger showroom may not be good at all for your bottom line.
Ours is an industry that in many ways is more people-intensive than capital-intensive. To be successful, startups will definitely need proper capitalization (usually through long-term loans) to finance their showroom displays, office equipment, organizational expenses, and 4-6 months of fixed overhead expenses. But good cash flow from assertive payment terms with residential clientele enables most mainstream kitchen and bath firms to not require much borrowing for working capital purposes. That feature alone can make this industry quite appealing for budding entrepreneurs.
There are a number of solid reasons to value your business – even on annual basis. First, if your spouse will inherit the business upon your death, your company should have enough term insurance on your life to be able to buy back the stock from your spouse. That action assumes, of course, that you would like (a) to see your company be perpetuated for the benefit of your staff and your clients and (b) your spouse has neither the interest nor the skill to operate it.
Sixty years since the advent of the modern kitchen/bath industry, design firm owners are still not making nearly enough money for the beautiful, functional, and complex projects they design and produce. A bold statement, yes. Here's my proof that dealers are not charging enough for their work. The vast majority:
Congratulations are in order! As a kitchen/bath firm owner, you survived both the Great Recession and the Reticent Recovery. Showroom traffic is considerably better. Consumers are more optimistic. You are busy preparing more proposals and closing more sales. Things are finally back to normal after a rough few years.
Don't focus on the top line. Gross Margin Dollars - and Gross Profit Percentage - are the two most important numbers on your Income Statement. In other words, it's not how much you sell in volume, it's how much money you make on each job sold.