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So many “metrics,” so little time! By Ian Baldwin www.Ianbaldwin.com 1
So many “metrics,” so little time!
By Ian Baldwin
www.Ianbaldwin.com 1
Sales Are Up, Where’s The Money?
Profit and cash flow are not the same!
Increased sales often lead to increased buying and a bloated inventory. This ties up cash flow despite profits on paper.
As sales grow, overheads grow quicker!
A series of steps (sometimes more like walls) to overcome as sales grow. At around $500,000 per year a nursery needs FT labor increasing overhead
From $750K to $1.3M, the next “wall” is tough as a company moves from being a big-small business to a small-big one.
Owners must “let go”, more organization is necessary and profits fall as a percentage of sales.
Next step is around $2 million, extra departments created, offices expand, maybe owner’s drive diluted.
Some Local GC (LGC) owners not comfortable & struggle past this point.
www.ianbaldwin.com2
Six Numbers to Live By
1. Sales volume
2. Customer/register-ring count
3. Gross Margin dollars (NOT %!)
4. Labor costs
5. Labor hours
6. Inventory
With these (and their off-spring) you can run the business and still have a life…
LGC winners use simplified reports!
www.ianbaldwin.com 3
The Basics
Gross Sales Volume
- Cost of Goods Sold (inventory)
= Gross Profit Margin (GM)
- Direct/Operation Costs
= Operational Profit
- Overheads/Expenses (G&A)
= Net (Pre-tax) Profit (NP)
or EBITDA
www.ianbaldwin.com 4
Cost of Goods Is Approx. 50% of Sales!
Some LGCs procrastinate over $25,000 to re-pave the parking lot but go to a show to spend $250,000
Winning companies say that the bottom line starts with buying. They search, negotiate and buy with discipline and confidence.
They have consistently reduced “conSKUsion” and see COG as their main profit opportunity, “My retirement income starts right there..!”
Q: COG may cost 20 times more than marketing. Do you reflect that in your management of it?
www.ianbaldwin.com 5
“Get it where you can, give
it back where you have to..”
www.ianbaldwin.com 6
Mind The Gap! – THE Crucial Number!
100% Gross Sales
- % Cost of Goods, +/- inventory
= % actual Gross Margin (GM)
- % Labor Costs (inc ‘Burden’)
= % “The Gap”
If this calculation doesn’t consistently produce a
26% “Gap” at year end, minimum, year-in, year-
out, a GC will struggle to re-invest, expand, update,
pay bonuses, reduce debt/build value, have cash
www.ianbaldwin.com 7
Labor Is Another 20-30% of Sales!
Q: “What should my labor be as a % of sales?”
A: “Wrong question”, should be “What can I afford?”
As a %: Take true GM% say 50%, subtract 26% “Gap” to get 24% of sales, that’s your MAXIMUM labor costs for the year (all retail labor costs inc “burden”)
In Dollars: e.g. sales = $1 million, true GM is $500,000, subtract $260,000 “Gap” (26% of sales), so $240,000 is your MAXIMUM labor budget, sorry, labor allocation is driven by GM dollars
Q: Do you start with the labor $s you say you need or with the labor $s your GM says you can afford?
www.Ianbaldwin.com 8
Labor Productivity
Sales$/Lab hour is the issue.
At less than $70 (over the whole year) LGCs are not very profitable, winning (full service) LGCs are between $80 and $100 but impacted by high ticket items like patio or big trees.
Grower-retailers will be lower by design
What’s yours?
Q: Is your productivity rising quicker than the cost of labor?
It better be!
www.ianbaldwin.com 9
#6 Inventory: Making or Braking The Bank?
Biggest investment any GC makes in a year (by far),
doesn’t get the most analysis or management…
Winning LGCs take an accurate physical count at
least twice a year, with cycle counts in between for
higher-risk categories. They know their $/sq. ft./week
At 50% of sales $s, it’s the life blood of the business
and that means regular blood pressure tests such as
GMROI, turns, aging or cost of space calculations….
Q: Do buyers and managers look at inventory as an
investment to be monitored/managed or as “stuff”?
www.ianbaldwin.com 10
Productivity: Labor, Inventory, Space, Time
Labor: Sales per labor hour, GM$ per lab hour
Inventory: GMROI, turns, days on hand/aging
Space: Sales or GM$ per sq. ft./acre/bench/etc
Time: Sales or GM$ per day/week/month
The Whole GC: Cost per day to open the door
and break-even point
www.ianbaldwin.com 11
Follow The Money, Sweat The Big Stuff
70-75% of most LGCs sales $s go straight out on 2 costs – Inventory and Labor
Don’t agonize over the small stuff, time is precious
Inventory is the only investment that creates wealth, every other cost supports that goal!
Gross Margin $s pay the bills and labor is the biggest one by far – ten times the ad bill…!
The relationship between GM $s and Labor $s (your GAP) is what makes or loses money in this business – period.
Thanks AmHort, Happy number crunching!
www.ianbaldwin.com 12
