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The Value of Benchmarking

Apr 13, 2016 2:00:00 AM

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.

And THAT is what concerns me the most … for kitchen/bath firm owners, for the staff that support them, for the vendors who ship them product, and for the industry we all love and in which we make our living. Because if dealers haven’t truly uncovered, confronted, and repaired the flaws in their business models before the market rebounds, then all the pain of the last four years will be revisited in the next downturn. And that would be tragic. 

The biggest problem with most small businesses is with the owners themselves: they are simply too close to their operations to really see all the flaws. They may have survived the last four years, but most still lack the perspective to know what to change. The results of a SEN/KBDN survey a few years ago supports this observation; it revealed that 90% of the 200 kitchen/bath respondents lacked a business advisor, board of directors, or membership in an industry organization that could provide reliable advice.

Getting Back To Normal Isn’t All Good

“Back to normal” for the typical surviving kitchen/bath design firm owner means working furiously in the business, not on it. Owners again seem to be TOO BUSY to learn all there is to know about what they don’t know in running a profitable, sustainable business. As evidence, I submit the nearly 50% no-shows of kitchen/bath dealers who were invited to a recent one-day business seminar in Baltimore as guests of sponsoring vendors. The event was free to them. If applied correctly, the information presented at this seminar could transform a marginal operation into a real money-maker. But 50% of them were too busy – and too short-sighted - to learn.

Maybe there is comfort in keep doing what you know rather than finding out about what you don’t know. But it sure won’t build a better bottom line for business owners in the short term. And it sure won’t empower them in the long term to build their business into an engine for wealth that can be sold for a premium price and fund a comfortable retirement. 

Speaking of retirement, most kitchen/bath dealers have exhausted their savings or taken on more debt just to survive the Great Recession. People are living longer in retirement; indeed, certified financial planners say your money should last you to at least age 95. Social Security will not likely be as big a safety net as for earlier generations. Out-of-pocket medical expenses for the average couple in retirement is estimated at $250,000. So, going forward, it’s going to take a lot of very profitable years in business for most kitchen/bath dealers to either rebuild their savings or develop their businesses into very valuable assets that can command a hefty sales price to earn a worry-free retirement – or both. You certainly don’t want to be 80 years of age, retired in Florida, and have to sell an occasional kitchen project just to have ends meet.

Benchmarking Bursts The Bubble

For far too long, kitchen/bath dealers have been living in a bubble … in a world consumed with design professionalism and fashionable products. There are no requirements that Certified Kitchen Designers earn credits annually in business management or financial management to retain their professional designation. There is no demand for an industry business school. Kitchen/bath design firm owners have no way of knowing how their company’s financial performance compares to others - or where they should begin to improve their operations. It is for these reasons that the industry has remained so fragmented. And, sadly, it will remain fragmented until the majority of kitchen/bath dealers graduate from some form of a thorough education in business management.

In the absence of a fully developed industry business school, a professional benchmarking report can burst the bubble that has isolated kitchen/bath dealers for so long. Its purpose is to (1) show how a dealer’s financial performance compares to a select group of successful peers and (2) offer succinct advice in improving the weakest areas of their business so they can better their bottom line. It represents a golden opportunity to flush out the flaws which exists in most kitchen/bath business models.

Essentially, numbers from a company’s most recent financial reports are fed into a computer program and benchmarking reports on liquidity analysis, profitability, and business valuation are produced. In my judgment, the greatest value of this benchmarking is the positive direction it affords an owner to start working on his business. In The 7 Habits Of Highly Effective People, Stephen Covey taught us that you need to begin with the end in mind; indeed, that is the essence of strategic planning. But to construct that written vision, you first need to have an accurate appraisal of your starting point. And that’s what a benchmarking report delivers.

There is no doubt in my mind that a kitchen/bath business can be developed into an engine for wealth. Kitchen/bath dealers - serious about substantially improving their operations – will need to get over any concerns they may have about releasing company financial information. Candidly, it’s this kind of provincial thinking that has held back kitchen/bath dealers – and the industry - from making real strides forward.

For those of you who are not yet SEN Members, please feel free to take our Modified Dealer Benchmark today to see what areas of your business might not be as strong as others. Then, let SEN help. With a team of highly qualified Business Coaches, SEN can assist in improving these areas, and get you to where you want to be. 

Ken Peterson, CKD

Written by Ken Peterson, CKD