How To Make More Profit

TURNOVER = PROFIT

Turnover is defined as the number of times you sell your inventory in one year.
$30,000. Net Inventory, $30,000. Net Sales= 1 Turn
$30,000. Net Inventory, $90,000. Net Sales= 3 Turns
Proper rate of turnover can be a dealers most important profit tool. Too much turnover can mean missing
too many sale opportunities because your stock is too thin. Too little turnover can mean too much dead
stock, or too much depth. New dealers tend to have high turnover, while old- well-established- stores
tend to get too little turnover.

WHERE DO YOU FIT IN?

From studies and personal experience, we feel that any dealer can get 4-5 turns. Some go as high as 8,
but that is the exception. Fewer turns are not giving you a fair return on your investment in your
business.

Many dealers are much more interested in what extra % can you give me? rather than turns. That can
be a fatal mistake. A reasonable balance is required.

Example: A dealer has a $35,000 cost inventory.

Just ONE EXTRA TURN will give him $19,250 GROSS PROFIT, @35-1/2%.

It would take an extra 10% on $192,500 in purchases to equal the $19,250 PLUS with extra turns you
dont buy early, you dont try to out guess the public, you dont gamble. Of course, if your gross profit is
40% instead of 35-1/2%, better yet.

HOW DO YOU GET EXTRA TURNS$$$$$

Rule of thumb. . . you do 80% of your business with 20% of your merchandise. Basics are white and
black paint, #1 knives, #11 blades, cement, 1/16 x 3 balsa and other items which are a must in your
store. That 20% is essential, and you should always aim to keep it fully stocked. The other 80% of your
merchandise is where you get your extra turns.

YOU BUY FROM THE SUPPLIER WITH THE FASTEST DELIVERY. Save just one day an order. If
you buy weekly, thats 52 days per year of extra selling time. Or if you buy every other week, thats 26
days for extra sales. That is an extra 26 or 52 days per year with NO increase in selling expense or
overhead. An extra month or two. . .

BUY FROM A SUPPLIER WITH THE MINIMUM BACK ORDERS. Back orders tie up your money,
cause you to order elsewhere, disappoint your customers, and make extra work.

BUY WHAT YOU NEED. Keep track of sales. Will an order for two each carry you? If you were
formerly buying four each, you have cut your inventory 50% and increased turnover. (IMPORTANT)
Above assumes you can get merchandise when you need it. If hard to get or in the 20% area, plan ahead.

DONT REPLACE EVERY ITEM THAT YOU SELL. You cannot replace every item you sell, buy all
NEW items, and get good turnover.

BALANCE. Of course, you must have a balance of the above. Most profitable merchants have
established a relationship with their customers that they either have it or will turn to get it, and with a
smile.

RISK. This is a real factor in all these decisions. Cash flow risk. Getting an extra 10% on $192,500 in
purchases with the attached Deals, early buying, guessing, etc., is one way to go.
Getting one extra turn on the $35,000 inventory equals the same gross profit with no gambling, and it
even adds the money to discount your bills, plus of course, the reason we are all in business, makes you
more money.

EXTRA TURNOVER REQUIRES MORE MANAGEMENT, BUT LESS RISK. . .

DEALS Without Dating are an even BIGGER RISK. . .
 

TURNOVER CHART (Figures as an Example)

Inventory at your cost December 2002          $32,000
Inventory at your cost December 2003          $28,000
Total                                                              $70,000 Divided by 2 = $35,000 = Average Inventory

As an example if your:
GROSS SALES 1994                 $148,000
Less mark up (35-1/2%)           $52,540
(Less markup  total of all markups divided by the number, i.e. 40=25-30=95 /3 -31.6)

EQUALS NET SALES                 $95,460 (Cost of Goods Sold)

$95,460 (NET SALES) divided by $35,000 (AVERAGE INVENTORY) equals 2.73 TURNS PER YR.

Only ONE EXTRA TURN would equal about $19,500 more GROSS PROFIT!

HOW TO FIGURE GROSS PROFIT
                        
Experience indicates that many businessmen have the wrong idea about figuring profit. 

Remember that 20% added to cost does not yield 20% profit. Profit is properly figured on selling price. To make 20% profit, you must add 25% to cost.                                           
                                                                                
Example: An item costs you NET    $1.00                                                     
                         Add 55% to NET       0.55            
                                        TOTAL     $1.55               
                                                                            
List of $1.55 shows you a 35-1/2% Profit