International Door & Operator Industry

MAY-JUN 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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Page 18 of 110

16 International Door & Operator Industry™ MANAGEMENT Continued from page 15 money on a job left over after deducting sales or use tax, material used on the job, freight, cost of labor and labor burden or labor fringes such as FICA, SUTA, FUTA, health insurance and worker's compensation. They then explained the differences in gross profit among the products many diversified residential garage door dealers sell, specifically among builder sales, retrofit sales and service sales. Dudley's company was generating $2,400,000 in sales per year to residential builders, but his margins were just twenty-one percent (.21). Dudley's new friends pointed out that retrofit residential sales usually generated thirty-five percent (.35) gross margin points while residential service sales generated fifty-five percent (.55) gross margin points. On a paper napkin at lunch, his friends quickly created several charts to show Dudley a different and more profitable business model to pursue if Dudley changed his sales mix from all builder sales to a combination of builder sales, homeowner retrofit sales and residential service. First, based on Dudley's information, they showed where he was today: In addition, Dudley shared the following financial information with his friends: The two friends then sketched out a possible business scenario with Dudley, based on a two (2) year plan to change the mix of Dudley's current business. The goal was for Dudley to concentrate on reducing his dependence on builder business in favor of augmenting the builder sales with retrofit and service business. Their suggestion was to allow sales to increase only about five and a half percent (5.5%) per year. Expenses would definitely increase as the plan included hiring a retrofit sales person for $60,000 plus burden of fifteen percent (15%) for a total of $69,000. Dudley would need to hire new office person to answer service calls at a total cost of $24,000 and he would need to start an advertising program at an initial cost of $36,000 per year. Finally, Dudley's friends stated he would have to create a small showroom and create a website for an additional $24,000. The total outlay would be $153,000. Dudley cringed at these new expenses and had some doubts until his friends showed him how his new business plan would look if he completed the plan after two (2) years as shown in the next column: After much frantic scratching on many napkins, the friends and Dudley agreed the new business plan would greatly improve Dudley's profitability as shown below: Assumptions: • Sales will increase about 5.5% per year to $2,680,000 • Expenses will increase by $153,000 for a new retrofit sales person, a new office person, advertising, website, showroom and by an additional $35,000 for inflation for a total of $188,000 for total expenses of $712,000 from $489,000. • Gross margin will increase from .21 to .3157 as shown in the chart above Changing a familiar business model is not easy, but by emphasizing higher margin sales and de-emphasizing lower margin sales, a garage door dealership can become significantly more profitable and often less frustrating for the owner. The examples in this article show a firm going from a paltry $15,000 profit on $2,400,000 in sales to a more respectable five percent plus profit on $2,680,000 in sales. The mix of products, specifically pushing higher margin products makes all the difference. John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and financial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including finding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@ Category Sales Margin Gross Profit Builder Sales $2,400,000 .21 $504,000 Sales $2,400,000 Material .616 1,478,400 Labor .128 307,200 Labor Burden (Fringes) .036 86,400 Freight In .010 24,000 Total Cost of Goods .790 $1,896,000 Gross Profit .210 $504,000 Expenses .204 $489,000 Profit .006 $15,000 Category Sales Margin Gross Margin Builder Sales $1,400,000 .21 $294,000 Retrofit Residential Sales 800,000 .36 288,000 Residential Service Sales 480,000 .55 264,000 Total $2,680,000 .3157 $846,000 Sales $2,680,000 Material .5037 1,350,000 Labor .1331 356,640 Labor Burden (Fringes) .0374 100,160 Freight In .0100 26,800 Total Cost of Goods .6841 1,833,600 Gross Profit .3159 $846,400 Expenses .2657 $712,000 Profit .0502 $134,400

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