Egger: Boost profits by controlling what's really important
By Gary Evans -- Furniture Today, April 5, 2004
SAN DIEGO — Would you want this store?
It has $13.5 million in sales, an 11.7% increase in business over the previous year, a 54% gross margin and merchandise that turned eight times in the course of the year.
Sounds good, right?
But, said John Egger, "The bottom line is that store lost $111,000."
A big reason, he said, is that this store had 46 non-selling employees on the payroll. Egger, CEO of Hillsborough, N.C.-based Profitability Consulting Group, used the example in a workshop on "Transforming Revenue to Profits" at Myriad Software's users conference.
With challenges like poor pricing power and intense competition, retailers shouldn't overlook even the smallest details where money might be saved, Egger said.
"You've got to measure every aspect of your business in order to manage it," he said.
He cited Southwest Air Lines as an example of a company whose employees "use the numbers to improve profits. They know that seven passengers will pay for the trip fuel, and that 31 will pay for the trip fuel, gate operations and the flight crew. Above that, they know they're making money. Everybody knows the numbers. Until we look at the real numbers, we don't know what it cost."
Southwest's diligence has contributed to its 157 profitable quarters in a row, and a stock value five times greater than the top five airlines together, he said.
"Sales is the leading edge of the money machine," according to Egger, but there are several other tools for building profits.
For example, two stores sold a sectional at the same price, and each reaped the same profit of $899. But Store A ended up with a gross margin of 49.5% on the sectional; Store B, 35%.
The difference? Store A charged a $49 delivery fee, Store B delivered free. Store A sold a $120 fabric protection plan, Store B didn't. And it cost Store B $120 for financing, while Store A had no financing costs.
"Few stores can make money at 35%," Egger said.
Most stores are now charging for delivery, and those that aren't should be, he said. With rising labor and fuel costs, "If ever there was a chance of legitimizing (charges for) delivery, it's now."
And "fabric protection is the highest-margin thing we have," he added, increasing the average sale significantly and adding to the salesperson's pay. Since money motivates, cash bonuses could be added for team performance when everyone hits a specified sales number.
Egger said stores also can save money by negotiating better credit fees with their bank. For instance, a store with $2,418,700 in credit transactions would pay $71,352 in processing fees at 2.95% but only $45,955 at 1.9% for a savings of $25,379 — all of which goes to the bottom line.
He reminded his audience that debit cards are cheaper to process and, with debit sales increasing 130% last year to $16.5 billion, merchants should be mindful of the savings. Too often, he said, a cashier doesn't ask a customer if she wants to pay with a debit card, forgoing substantial savings for the store.
