Where Do ThoseProfits Go (On Average)?
- 56¢ goes to freight.
- 7¢ goes to rent, utilities, phones, etc.
- 14¢ to advertising, promotion, credit costs.
- 20¢ to salaries, commission, & benefits.
- The balance, 3¢, is subject to 40% taxes.
Ask an associate how much profit an average furniture store makes. Most will guess in the neighborhood of fifty percent. This is wildly off, of course. Here is how to dispel this perception, which is the source of most of the employee attitudes that hurt the bottom line.
Every day, in furniture stores across America, salespersons are confronted with customers who challenge prices. Salespersons are generally defensive about store profits, and have no idea how to answer customers who claim the store is making huge profits. Big ticket, slow-moving merchandise such as furniture has long been perceived as highly profitable by the average consumer.
Employees in furniture stores generally hold the same perceptions as retail salespeople. As a result, plenty of careless mistakes are made by employees who believe that there is an abundance of profit to take care of any errors. Some merchandise may even be thoughtlessly damaged by other employees who don't think they are getting their fair share of the "cash cow."
Even in enlightened companies that offer profit-sharing, employees hold wrong notions about how much total profit is being made. "Open Book" management methods have helped remedy employee ideas about profit, especially in warehouse and operational areas. Nevertheless, most employees have no clue as to the reality of making profit in a retail business today. Here is the true story they need to hear, and the story they should be telling customers.
The Forbidden Topic
People don't like to talk about profit. Yet, profit is the material lifeblood of any company. Even a high-minded enterprise driven by a service-motive cannot survive on lofty ideals alone. Nor can organizations with rock-solid integrity survive without the skills to deliver goods and/or services for a fair profit. To survive today, a furniture organization must be service-driven, honest, AND excellent. All three values must be in place, because a two-legged stool will fall over.
Profit is About Excellence
Profit is, in fact, the material component that provides a tangible way to measure excellence. Without reasonable profits, there can be no security and material benefits for your associates and their families. Profits are necessary to buy additional inventory for next year, for investment in improvements, as well as to fund profit-sharing programs. It can help the associates of a company have more rewarding careers and to retire with dignity and confidence. What needlessly robs profit also robs associates and their families. Profit in a good, honest company is equally good. Profit is a fair return on investment. When a company is reasonably profitable, it can do a great many things for its associates. On the other hand, if a business is not profitable it cannot even continue to exist for very long.
The reason most associates may seem to be uninterested in profit is because they don't think they can do much about it. However, the truth is that your associates are the key to a tremendous improvement in bottom line performance.
Before you can tap into this potential, you must teach them about profit. They need to realize how a "small" avoidable mistake can exponentially affect profit. A small leak can eventually sink a mighty ship.
Poll your associates. Unless you have already educated them, you will discover that most of them believe that an average furniture store makes about 40% to 60% take home profit. Actually, the real number is 2% to 4% - and that's before the government takes a big tax bite! Plan an employee meeting to discuss profits. Make large posters of the graphics in this article to drive home your points.
The Five Deadly Profit-Eaters
There are five critical areas of profit-impact you should define for your associates: avoidable mistakes, careless damage to merchandise, wasted time, shrinkage and being indifferent to what is wrong.
All furniture stores move a great deal of furniture and it is almost impossible to avoid some damage. But careless damage is not excusable, and it is very, very costly. A paperwork mistake can be even more expensive than physical damage. Poor paperwork can result in a delivery pull, wasted time, and unnecessary handling - often resulting in damage. Sometimes mistakes happen because employees may feel rushed. There is an old saying: "Why is it there is never time to do it right the first time but there is always time to do it over?" Devise important incentives to eliminate careless mistakes and damage. This will have a tremendous affect on your bottom line.
Associates who waste time, waste more than money. They demoralize hard working associates who see and resent them. The same is true when someone wastes supplies and materials. Appeal to your associates for help. Instill in them a "can do" spirit that asks, "How can we get it done? How can we do it better?" Apply that attitude toward doing excellent work without careless mishaps. Unexplained loss of supplies, materials and merchandise hits profits very hard.
Make associates conscious of the seriousness of shrinkage problems, and they will respond by helping to solve them. But don't expect a one-time quick fix. Constantly remind associates to be more careful and more precise. This is why profit sharing is so essential; it instills ownership. An associate can then understand that when someone takes from the company, they are taking from themselves. Things go wrong. Bad judgments are made. This is life. But, don' t be afraid to ask your associates to take a stand. When your associates are confronted by things that are wrong, ask them to be responsible. This does not mean they need to aggressively challenge other employees every time they see something wrong. Making a stand can be as small as picking up some trash that others keep ignoring. It can be as large as reporting a serious infraction.
The Key to Making Your Message Stick
Have you ever wondered why, after giving a great talk to your employees, the wheels come off in a few days and everything goes back to business as usual? If you have, you may not understand the most important fact about impacting corporate culture. It goes like this: "The value of any given program depends not upon its quality, but upon the infrastructure that is put in place to continuously support it." In other words, you must be persistent and resourceful or your ideas will soon be forgotten.
Even the greatest visionary leader cannot succeed with one presentation of his or her vision. You must walk and talk the principles of your vision, and more. Whatever your vision, you must find creative ways to remind everyone about it. You must be unflinching, and have a plan to continuously hold up your ideas and aspirations. Posters, meetings, bulletins, contests, and other tools that support mindfulness help. But, most of all, you must ask for feedback. Ask for ideas on solving problems such as careless mistakes and incompetent merchandise handling. Reward excellence and good ideas. Form an ad hoc team to explore issues and recommend solutions. When you listen and modify your own vision accordingly, you are not weakening it. You are strengthening it by sharing it. When people share ideas, they all retain what they started with while gaining what the other fellow submits. Ideas and visions are one of the few things that grow larger and richer the more they are shared.
Trust in the quality and potential excellence of your people. And remember that all sturdy stools must have at least three legs. The same is true of solid, growing companies. All built-to-last companies, and all great visionary leaders, have three factors in common - and in proper balance. They are: Integrity, Benevolence, and Excellence. Strive to teach and model these high values. They embody the highest perceptions of humankind since Plato first defined them as Truth, Goodness and Beauty.