These specific fiscal management techniques will help you make more money at your frame shop
Here is a fairly exhaustive list of techniques that can apply to any framing business. Some you probably already do but perhaps not as well or as often as you should. In some settings, I have often seen a sharp improvement in profit and cash flow driven by the accumulation of a lot of little things. The same should be true of any frame shop.
Higher Gross Margin Rate
- Without changing anything else, simply sell more. I know – if it were that easy….
- Add-on sales can be huge. Say your average sales transaction is around $65. Therefore, an add-on item of $6.50 would drive a 10 percent sales increase. To be effective at add-on sales, however, you need to:
- Expect it of your salespeople.
- Train your salespeople to do it.
- Track it and reward it.
- Identify specific items to suggest.
- Stick with this approach.
- Upsell. Tell clients, “What we have designed here is very nice. For just a little bit more, this can be stunning.”
- Service the customer to death. Assume no obstacles and no boundaries. You want every transaction to leave the customer with the feeling that “Wow! They really know what they’re doing.”
- Even if you don’t make the sale, make a new friend who can’t wait for an excuse to come in and buy something from you.
- When there is a problem, take the customer service game up a notch and turn it into a positive experience for the customer. Countless surveys have shown that effective handling of a problem creates a stronger customer bond than if there were no problem in the first place. When you have screwed up, bend over backwards to fix it!
- Keep your store looking sharp! No one wants to shop in a dump. Dumps don’t mean low prices, they mean “poor management” or “dying business.” No burned out lights, dirty carpet, etc. And use your windows to pull in customers.
- Keep reinventing your store and refreshing your look.
- Constantly be promoting. Become known as a place where there is always something going on.
- Keep looking for new products, new applications, and new themes that will drive higher sales.
- Always be pruning. There is always a bottom 10 percent on the turnover pile. Keep getting rid of it. Do not let a product take up permanent residence on your walls. If it isn’t turning, close it out (preferred) or send it back if you can. As you learn more about your inventory, sales, and turnover numbers, you may find that you have a low turnover on wall art. You need to be replacing wall art with new ideas.
- Pricing/Discounting. I will attempt to walk a tightrope here. You may have a discount policy, and that is important. What is much more important is the fact that you are in the money business, not the policy business. Nine times out of ten, if a little more discount will make a sale, you want it! Think clearly, know your margins, and—if it’s right—make the sale.
- As you know, your salespeople are a key piece of the equation. When they are on the floor, make sure they are firing on all cylinders. Appearance must be sharp and appropriate. Grooming must be professional. Hygiene must be first class. If a salesperson, for whatever reason, is in a bad mood and can’t get out of it, send that person home.
- Train, train, retrain, then train some more. There is almost always a benefit to reviewing old stuff. Have your people “own” the training. Let them rotate as trainers.
- Have high expectations. Demand sales performance. Fix or replace weak salespeople. Encourage all to achieve higher levels. With a salesperson who is consistently at 142 percent of goal, try using, “I’m confident you can get to 150 percent. I know you can, and I want to see it. Is there anything I can do to help?”
- Reward strong sales performance. A pat on the back, a hug, or a handshake from you is a big deal to your people. Celebrate their successes.
- Keep the numbers in front of your salespeople. What do they need to sell by the week, by the day, by the hour? How are they doing against that? Tell them, “We need $XX to make the day.” Or to make the week or whatever time period.
- Have sales contests all the time. The prizes don’t have to big deals. Bragging rights are a powerful motivator. Make it fun. Create a pinball game atmosphere—that is, if you do well, you get to play again.
- Gross margin is the difference between sales (what you get for a product) and cost of goods sold (what the product costs you). If you can improve your gross margin rate, particularly without losing any sales volume, you will make more money.
- A key point – improved gross margin rate is often pure additional profit. You don’t pay additional commissions on it. There is no additional credit card discount expense; no additional percent on the rent; and no additional shipping, maintenance, services purchased, etc. What a deal!
- Store/gallery managers, purchasing, and framing all impact gross margin rate. Store/gallery managers drive sales (what you sell, pricing, discounting). Purchasing and framing drive the cost of goods sold (materials pricing and quality as well as labor and overhead expense). Improving the gross margin rate is a team effort.
- Store/gallery managers can improve the gross margin rate by:
- Continually replacing lower margin rate products with higher rate products.
- Controlling discounting and making sure they make solid decisions.
- Also, you need to have a good understanding of the elasticity of demand for different products. Sometimes a 10 percent price decrease can drive a 50 to 100 percent volume increase. Margin rate will suffer, but margin dollars will skyrocket. I’m sure you’ll take that deal! Conversely, when demand for something is high, you can sometimes increase the price sharply without reducing sales volume. You want that deal, too.
- Framing managers can improve the gross margin rate by continuing to improve the efficiency of production operations—the way you do things—and the quality of the output.
- Purchasing determines what you pay for. There is a price impact and often a quality impact in purchasing choices. You need to optimize—that is, continually push for both lower prices and higher quality. Also, out-of-stock situations hurt sales volume and production efficiency.
- Net freight expense is a total team effort. Purchasing needs to get the best prices and provide accurate guidelines on what to charge at the front counter. Stores need to charge the correct amount for every purchase. Shipping needs to operate with both maximum efficiency and optimum usage of materials (minimal waste).
- Don’t waste any money, not a single dollar. If you are doing anything or spending money on things that are not driving sales, you must stop doing them right now! If you can spend $10,000 and create $50,000 of incremental sales, assuming you have good margins, you will do that an unlimited number of times. That’s a double-your-money situation.
- Think of activities and dollars in two separate ways:
- How do you get more people to visit your store?
- How do you get those who are already your customers to spend more with you, spend more often with you, and spend more each time they are in your store?
- Those are two very different types of campaigns.
- Make sure your landlord is doing everything he or she is supposed to do to make your business a success. Know your lease and what you are buying.
- Don’t allow the landlord to put up roadblocks that he or she doesn’t have a right to.
- Consistent with effective store presentation and customer and employee comfort, watch the thermostat and the lights. The key is to minimize waste. Keep filters changed. Maintenance contracts can also be big sources of savings.
- Remember, capital expenses today mean depreciation tomorrow. Make sure you only spend money on projects that produce a sizable return, one that is greater than the depreciation.
- Look at your bills. Make sure that misuse is not taking place.
- Pay for performance. If there is one concept to cling to, it is that you should pay employees more for enhanced value, not for years of service, popularity, age, family size, etc.
- You have no dollars to waste. Think of every employee hour as a pile of dollars. You need a return on every single one, not 8 or 9 out of 10, but 10 out of 10! Manage the resource. Drive the return.
- If enhanced commissions don’t drive additional sales, stop paying them, regardless of how long they have been in place. The inverse is also true.
- Don’t schedule more help than needed—not in the store, the back room, or wherever. If all you need works out to 35 hours per week for hourly paid people, that is okay. You can only pay for what you really need. In the store, beware of doubling the number of people at shift change time. There shouldn’t be a need for much, if any, overlap. Schedule only what you need.
- Managers pay overtime, not time clocks. Normally, you want to absolutely minimize overtime because it is a premium cost. Regardless of what a time card says, if you didn’t ask for or authorize the overtime, there had better be a darned good business reason for paying it.
Repairs and Maintenance Expense
- Normally, you don’t want to buy a year’s worth of something at one time. Particularly if the shipping cost and hassle of ordering is low, smaller bites are better.
- Cheapest is not always the best. Often the more expensive product is the better value.
- Don’t let supplies “walk away.”
- The more competition for supplies, generally the better.
- Again, think of your supply stocks as buckets of cash.
- Make repairs only if you need to do it to make money. If not, don’t.
- Sometimes you are better off buying a new item. Don’t get tunnel vision. Stop and think.
- Do you know what services you are paying for right now? Do you know how much you are paying?
- Do you really need this service? Do you need that much of it? Does it help you make money or is it simply “tradition”?
- When was the last time you looked at competing sources? Hopefully, at least every two years, if not more often.
- Could an employee do the job just as well and at less cost?
- This is usually not a big issue for most frame shops. I am relatively not one for looking to save every last dime when traveling. Being reasonable and modest is a good way to look at it.
- To me, the way to control this expense is to travel only when there is a real business reason to do so. This includes meeting with corporate or major clients and attending trade shows, classes, and events.
- When there is truly a need, book well in advance. Last minute bookings cost more.
Credit Card Discount Expense
- This is both a great place to waste a lot of money but, if done properly, a way to cement important relationships. When there is a lot at stake, don’t be bashful. Just be reasonable. In today’s business world, far and away most reasonable, ethical business people do not expect lavish entertainment. In fact, it is relatively easy to embarrass people by doing so.
- Etiquette – There are two basic rules to follow as to “who pays”:
- Who invited who? The person who does the inviting pays.
- Who is the supplier and who is the customer? The supplier pays.
- Often, those two rules contradict. I certainly have no problem inviting a supplier to lunch or dinner and letting that person pay.
- There is nothing wrong with Dutch treat or I’ll get it next time, either.
- Remember, cash is good in every kind of way.
- Debit cards cost you less than credit cards.
- Visa and MasterCard cost less than American Express.
There you go – a primer on money management at a frame shop. The more you can employ these principles and tactics, the better you will financially perform and the more secure your business will be.
Mike Hulser, who does business as The Biz MD, is a Hawaii-based management and financial consultant and turnaround specialist. He is also the CFO at Pictures Plus. You can reach Mike at 808-672-0220 or firstname.lastname@example.org.