Sen. Everett Dirksen is credited with describing uncontrolled government spending by saying, “A billion here, a billion there and, pretty soon, you’re talking real money.” The esteemed gentleman from Illinois was making the point that a little money, over and over, adds up quickly.
The MI corollary to Sen. Dirksen’s observation, I believe, would be this: “A point here, a point there and, pretty soon, you’re talking real money.”
Allen’s Axiom #1 is, “All profit is made in single percentage points.”
To see why that principle matters, calculate your store’s profit for the year and then express it as a percentage of your overall revenue. Got that number? Great. No matter what the number is—whether it’s four points or 20 points—divide your total profit by that number. Now, you’ll see what one point (one percentage point) means to your business in dollars.
If you could suddenly pull two points’ worth of cash out of thin air and drop it into your bank account, how would that feel? Pretty good? Well, let’s see what we can do to gather up a few extra points.
Trim your shipping costs, both inbound and outbound. Examine your shipping costs on inbound product. If you receive inventory via UPS, call them and ask for your salesman to come by for a visit. Ask him about tier incentives, whereby the more you bill to your account, the greater your shipping discounts will be. Even if you don’t ship out much on UPS, you can ask your vendors to ship your products freight-collect to your account. That can benefit you in two ways: First, you’re getting the extra incentive discount; second, you’re paying actual shipping costs, rather than (possibly) an estimate. The key to making it work is to devote a little time to looking at what each vendor is charging for shipping, and then comparing that to what you would have paid using the shipping incentive. You’ll have to decide if it is to your advantage on a vendor-by-vendor basis.
If you ever receive truck freight, get an account with a freight reseller. (We use Unishippers, but there are many to pick from.) Be sure to get a freight quote from Unishippers before paying whatever your shipping company charges for truck freight. It’s not unusual for our truck bill to go down by half when we get our own freight quotes. Your freight reseller can talk you through what you need to know to get a quote.
Take advantage of free shipping whenever it makes sense. Keep up with free-shipping minimums, or call your inside sales guy and ask if there is a free-freight limit. If it makes sense to hit the minimum by adding product that you know you can sell, then do it. You can resell product; you can’t resell freight.
Take advantage of quick-pay discounts. Always. If you can pick up two to eight points by paying COD, and the points exceed the COD fee, take advantage of that. If you don’t need the product right now, ask if you can mail a check. Once the vendor gets over the shock of the question, you might find the answer picks up points in your favor. Prepaying with a credit card or a floor plan company, such as Wells Fargo (previously GE Capital), frequently offers some advantages. Call and ask. Use the funding method that generates the most points in your favor.
Bulk buy when it makes sense. Let’s say you keep a “must have” product that you restock at least once a month. It doesn’t matter what the product is; what matters is you’re buying that product at least once a month. You should have a good idea of how many pieces of that product you’re buying monthly. Inquire about buying a six-month or one-year supply, and see if an extra discount is available. Cases are frequently less expensive than box quantities. The only savings you might have is less spent on shipping, but, if so, that’s a point or two right there. That’s what we’re looking for, right?
Shop your insurance. Insurance policy rates tend to creep up over time. No matter how much you love your insurance agent, it makes good sense to compare rates every few years. You’ll need to ask your agent for a loss history, which is a red flag to him or her that you’re shopping rates. That request, by itself, might keep your current rate down. This is one situation where a few points’ difference usually isn’t worth making a change. However, if you find you’re paying significantly more than you would be with competing agents, you’ve got a good starting point for renegotiating your coverage.
Discounts given on sales are another expense you can trim, if you’re inventive in how you give the discount. For example, say the customer is asking for $100 off the price of an instrument. If you have enough margin that you can stand to make that discount, counter by saying that, instead of taking $100 off the price, you’ll give the $100 back as store credit. The customer gets $100 of value either way. The big difference is on your end.
Taking $100 off the sale price is taking $100 out of your pocket. Giving $100 in store credit benefits you, the merchant, in several ways: First, the product the customer buys with that $100 credit only costs you $50 to $70, depending on the item. Second, the customer might make several trips to spend the credit. The customer making more trips to your store means more opportunities to sell products that exceed the store credit. And, believe it or not, there’s always some percentage of customers who have store credit who won’t use some or all of it.
If the customer seems determined to get $100 off, offering a bit more than $100 in store credit might sway him from the cash. Remember, the customer is using the credit to buy product. So, as long as you don’t exceed your margin in the counteroffer, you’re still ahead in cash. Plus, you’re getting the customer into the store for extra visits, and there’s always the chance the person might not use some, or any, of the credit.
All profit is made in single percentage points. A point here, a point there and, pretty soon, we’re racking up better profits.