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David Geller

David Geller: Book Club

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David Geller shares the secrets of organizing your books to show what areas of your business are really making money.

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[h3]Book Club[/h3]

[dropcap cap=Y]our goal for the year: for the first time, ever, to really know how well your store is doing. Knowledge is pure gold. And knowing what areas of your business make you money lets you run it more profitably with less stress.[/dropcap]

To figure it out, you’ll need to correctly set up your point-of-sale or accounting software. Some POS programs have an accounting program installed with it but, if not set up properly, it’s just “mish-mosh” numbers. This article is the first in a series of how to set up QuickBooks for Jewelers. But you can apply this strategy to whatever program you use, whether it’s Peachtree or your POS accounting program. (As a QuickBooks Pro Advisor, I just find QuickBooks to be the easiest program to use.)

[h4]Let’s begin: First, a jewelry store should have its POS system and accounting program divided into three major income sales divisions.  
Showcase Sales: Sales of merchandise that we own. Our stuff.
Special Order and Memo/Consignment Sales: Sales of merchandise that we don’t own.  
Shop Sales: Repairs, custom design, appraisals, engraving watch repairs.[/h4]

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Most stores have one income account: Sales Revenue. This does you no good. You’re a jeweler — you’re special! And you have to organize your books in a special manner.

[h4]To go with these three sales divisions, you will also need to create three matching “Cost of Goods” accounts:

• Showcase Sales Cost of Goods
• Special Order/Memo Cost of Goods
• Shop Cost of Goods.[/h4]

These cost of goods numbers come from the POS program. “Cost of Goods” for merchandise is not entered when you enter a bill or pay for the merchandise. “Cost of Goods” is arrived at on the day the piece is sold.
(Important point: most jewelers pay for merchandise and call it “Cost of Goods.” It is not a cost. It’s an investment in your business. Therefore it’s called an asset account — “Inventory Asset.”)

Continuing on … the Shop Cost of Goods does not come from the POS system. Most jewelers will scratch their heads, trying to figure out the cost of sizing the ring. If you pay the jeweler an hourly wage and then charge the customer a single price you’ll never know what your cost is. Stop trying to enter into your POS system the repair cost … because you don’t know it!

What you do know, on the other hand, is the weekly pay for the jeweler. So the only way to setup the shop in QuickBooks is to compare Weekly Shop Sales versus Weekly Shop Costs.

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You know how to get the weekly shop sales: just add up last week’s repair invoices.

Then, to calculate cost of goods for the shop, add the following: weekly gross pay for the jeweler (move his/her pay check up from “Payroll Expenses”); the matching taxes you paid on the jeweler; your share of his/her insurance; findings bought this week, repair stones, gold; shop supplies, gas and oxygen, buffs, etc.

Now you can see if the shop is profitable. In fact this is virtually the only way. It’s the way I set people up when I do store visits and, for the first time, they have black-and-white numbers for the shop.

Organizing product sales in the manner above lets you clearly identify your Gross Margin Return on Investment (GMROI). By setting up the two product groups (Showcase and Special Orders/Memo/ Consignment) we will be able to see, by category, if the items we actually own make us money based upon the store’s inventory, not based upon if we made money on individual sales. If you have $25,000 invested in wedding bands from Vendor A wedding bands, any sales made from this category should be listed as “Showcase Sales/Department WB.” You own these bands. If they don’t sell, you know it — not to mention, feel it.

[inset side=right]You’d probably be better off to drop Vendor A’s line and stock Vendor K instead. Or maybe get out of the wedding-band business altogether![/inset]Further, if a situation arises where you need to special-order bands from Vendor A (you don’t have the size she needs, customer wants more diamonds, etc.), you should still list these as Showcase Sales/Department WB. That’s because, even though this was a special order, you wouldn’t have made it without having that vendor’s inventory in your case. So the inventory did make you money — and that’s the performance standard we’re trying to find. (However, if you have to order the wedding band from a different vendor, let’s call him Vendor K, whose tattered catalog you have on hand for such situations, you should not list that sale as Showcase Sales. Instead, it should go under Special Orders/Department WB.)  

This is the best way of finding out how a category is performing from you. To show you how misleading figures could be if you organize your books any other way, take the following situation as an example: If you stock 24 vendor “A” bands and with those showcase sales and special ordering from that vendor you sell a total of 18 bands in a year, the turn would be low — you sold less than you stocked.

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But if you lump all wedding band sales into one single category called “Wedding Bands” (WB), the sale of an additional 30 special-order bands from that tattered catalog you keep pulling out will make the WB department look like it sold 48 bands (18 + 30) and you’d think your investment with wedding bands, and particularly Vendor A, was a good one. It wasn’t. You’d probably be better off to drop Vendor A’s line and stock Vendor K instead. Or maybe get out of the wedding-band business altogether!  

Next month, we’ll dive into this even further. We’ll continue to talk about how you actually enter your sales income into QuickBooks. It doesn’t come from enter the Visa/MasterCard entries either! That’s money — not sales. Those are two totally different things.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at dgeller@bellsouth.net.

[span class=note]This story is from the February 2005 edition of INSTORE[/span]

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David Geller

Can You Make Money at 12 Percent Margin? Yes, But Here’s What It Takes

As one factor decreases, another must increase.

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CAN YOU MAKE a living on a profit margin of just 12 percent? Did the word no come to mind? You’re wrong.

For coin or bullion dealers, 8-12 percent gross profit margin is the norm, and they make a lot of money with little debt.

The “magic triangle” includes profit margin, inventory turn and inventory level. The combination of all three tells your future in a store, how much money will be left over to pay all bills and have money in the bank.

Let’s take a simple store math example for a year using keystone. A typical jewelry store would have a net profit of 5 percent. Here’s how a P&L would look:

Total Product Sales: $500,000
Cost of Goods: -$250,000
Gross Profit: $250,000
Expenses (45%): -$225,000
Net Profit (5%): $25,000

Are you making money? Absolutely. Do you have any money left over after paying expenses? Depends.

Imagine if last year, you sold everything at Christmas, not a stitch of inventory left. January 2nd, you fly to New York with three suitcases and buy the $250,000 of inventory that the cost of sales above pays for. You’ll have no debt. If something sells within six months, you have the money to reorder the replacement for the case, thus always having a stocked showcase.

Divide $250,000 in cost of goods by inventory of $250,000 and you get one turn a year.

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Now assume the same figures above, but instead of three suitcases costing $250,000, you bring five suitcases and bring back $600,000 of inventory for the store. Same sales and profit numbers as before. Did you make a profit, make money? Yessiree Bob! Do you have money? No! You bought $100,000 more inventory than the sales you took in. So how do you pay for it?

  • Owe vendors way past the due date
  • Put it on credit cards
  • Go to bank and take out a line of credit
  • Personally skip paychecks
  • Take money from your personal checking accounts

In this scenario, your inventory is $350,000 higher than the cost of goods sold. Divide cost of goods by inventory level, and it shows you have a 0.41 turn. A turn of 0.41 means this store has more inventory than needed for two years.

So, what’s the secret to having money?

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The long and short of it is, if you’ll keep your inventory levels approximately equal to the gross profit dollars you’ll make over a year, you’ll both make money and have money.

The lower the profit margin, keep inventory lower, or if you must have a higher inventory level at lower margins, then turn it faster. Instead of taking 12 months to sell it, sell within nine.

It takes all three for The Magic Triangle to work magic in your store!

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David Geller

What You Can Learn About Turn from Clothing and Furniture Stores

Hint: Turn more, earn more.

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THERE ARE REALLY only three important numbers in a retail store: gross profit dollars, inventory on hand, and inventory turn. So who’s better at managing money among these three retailers?

Store                         Gross Profit %
Jewelry                      42.6%
Furniture                  45.0%
Clothing                    46.5%

Darn close, aren’t they? The grass isn’t so green on the other side after all. Or is it?

Let’s look at inventory turn, which means how many times a year an item sells. (These numbers are from stores doing “pretty well.”)

Store                            Turn            Days in the Store
Jewelry                   1.4                       260
Furniture               3.5                       104
Clothing                 4.3                       84

A clothing store won’t keep a shirt/suit/jacket/blouse in the store more than three to four months. They will heavily discount it at that point to get it out the door; they don’t just “squash” merchandise closer together to show more like jewelers do.

Furniture stores work the same way. They have a natural problem: available floor space. The biggest reason for high turn in a furniture store was told to me by a furniture store owner: “Where am I going to store an extra 100 mattresses?”

Clothing stores get rid of their merchandise every quarter. Furniture stores get rid of their inventory every four months, and a good jeweler turns their merchandise a little over once a year. But most jewelers I meet have had their total merchandise for two-and-a-half to four years! This causes terrible cash flow and piles of debt.

If you buy jewelry in January, it should sell at least once by Christmas; that would be a turn of 1.0. If it stays until after Christmas, discount it or give a spiff to the sales staff to unload it, or even return it to your vendor and exchange it.

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If it is still there in 18 months, scrap it. That’s what clothing and furniture stores do.

Let me show you the money-making power of turn. All three stores are going to buy an item for $200. For a jeweler, this might be earrings; for a clothing store, a nice jacket; and for a furniture store, it might be a chair. In the table below you can see the cost, profit margin in dollars, and what that brings in for total product dollars in a year.

Keeping an item long-term is a detriment. Even if someone buys it three years from now, you should have had that $207 in profit for each of the three years, totaling $621 brought into the store (not the measly $163.35 you would make by holding it three years).

When it’s over a year old, most things need to be disposed of and replaced. Maybe your customers just aren’t buying what you have in stock. Change that!

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David Geller

Here Are a Few Tips You Haven’t Seen to Make the Most of Your Bridal Custom Designs

They’re simple yet brilliant.

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IT’S 2019, AND it’s not your daddy’s jewelry store anymore. No more high margins on diamonds. Where’s the money now? The mounting.

Keystone is the goal, and many get it on the mounting, but comparison shopping can make it difficult. That said, the really big problem with selling from the showcase is the amount of inventory you must carry.

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On the other hand, custom designing an engagement ring has many advantages:

  • Higher profit margins
  • You pay for the item after you’ve collected money from the customer.
  • The customer feels like they are directing the process rather than being “sold.”
  • If you share the process of designing their ring with the customer, they will likely share with their friends and family. It’ll be on social media, texts and emails.
  • You can adjust which components go into the ring to more fit their budget.
  • Selling from the showcase has a closing ratio of 30 percent in most stores, but custom design has a closing ratio of 70-80 percent.

The downside? Someone must know how to design the ring, how it comes together and pricing. Training is essential, or having someone specific to sell the ring and lead the customer through the process. Figuring out how to price the item requires particular skills.

Here are some additional tips to make the most of your custom design process:

  • While designing the ring, if you use CAD/CAM, take a snapshot of the model on the screen and send it to the customer, saying something like, “Well, Jim has gotten started on your beautiful design.” If you hand-carve the wax or mill it, take a picture and send by text or email. Same goes for the casting process and another of the jeweler finishing up the ring.
  • When appropriate, send out a handwritten thank-you note.
  • Go to Office Depot and buy a pack of 100 sheets of do-it-yourself business cards. Make yourself a master blank company business card with no logo, just everything else about your store. Take a good picture of their new ring and paste it on the card, then print a sheet of 10 and have it in the envelope when you deliver the ring.

After they “ooh and aah” over the ring, tell them, “I’m glad you love it. You know, we have more customers come in from referrals than anything else and would love for you to refer family and friends. Here are some of our cards.”

Then plop them down on the showcase face up.

They will be so excited that they will not only place one on their refrigerator door, they’ll give them out to friends and show everyone how their ring is on “my jeweler’s business card.”

Isn’t this a fun business?

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