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David Geller

David Geller: Cost of a Bad Salesperson

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David Geller: Cost of a Bad Salesperson

Look at how much a poor performer drags you down.

Published in the May 2014 issue

In general, sales staff should cost you anywhere between 8 to 13 percent of total sales. If they cost as low as 8 percent they are very efficient. (Yay!) If they cost about 14 percent of their sales they are inefficient (Wah-wah trombone noise.) You’d like to get rid of the inefficient salespeople, but then you start looking at things like turnover costs, which some estimate as high as half the salesperson’s annual pay.

But I look at what they cost if they stink!

In my store, I had five salespeople all paid on 10 percent commission only, so it was easy to see how much they sold based on their W-2s. My two lowest earners made $32,000 and $41,000, meaning they made $320,000 and $410,000 in sales respectively.

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So I gave extra coaching to the $32,000-a-year salesperson to no avail, and I finally let her go. Why? Simple, look at the difference in sales between her sales of $320,000 and the other person at $410,000. She cost me $90,000 in lost sales. That’s a real cost.

When I let her go, the sales staff said, “Please don’t replace her. We’ll take up the slack.”

I didn’t and they did take up the slack. That’s how I look at the costs of a salesperson leaving. If you pay them well and train them, they will stay.

TRAINING

We had one-hour meetings every other Friday morning. We divided the sales meeting into four 15-minute sessions:

• Our price book: Everyone had a price book, brought out a whiteboard for illustrations and started with Page 1 of my book. We went over how we do the work, why we charge this amount, how to sell it and what to say to customers with a price objection. We stopped at 15 minutes, picked up at the next page at the next meeting.

• Product Knowledge: We let the staff sign up to teach the staff about a different product at each meeting. They would tell us where tanzanite, for instance, comes from, its description, rarity, where it’s mined and its characteristics. Then they had to sell one to someone at the meeting. Each meeting was a different stone or maybe about the different kinds of movements in watches, where pearls are farmed, and so on.

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• Salesmanship: We used Harry Friedman’s book No Thanks, I’m Just Looking and went over roughly a chapter at a meeting. Order the book here: instr.us/5143, or go to friedmanlearning.com for online sales training.

• Store News: Not store complaining: store news. What’s happening this week in advertising, new products we got in, John’s wife had a baby, sales are only $10,000 away from goal, here are bonus checks for last month. Etc.

To understand the cost of a bad hire, think of your closing ratio.

The average jewelry store in America sells only two to three people out of 10 who come in and look in the case. If your store closes three out of 10, and you could get just one more person to buy, that would be a 33 percent increase in sales without any additional advertising cost. That’s huge. If your average sale is $400 for every three who buy, that’s $1,200 in sales.

“Why did I let her go? Simple.
She cost me $90,000 in
lost sales. That’s a real cost.

If you could go to four out of 10, that would be $1,600 in sales!

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Now, if you add to that raising your average sale from $400 to $450 (or get a $50 add on), and you now sell four out of 10, sales for every 10 people who came in would go from $1,200 to a whopping $1,800. That’s a 50 percent increase in total store sales for just getting one more person to buy a $50 higher ticket item.

Huge, Huge, Huge.

Don’t worry about what it costs if an inefficient salesperson leaves. Worry about what it costs if he stays!

 

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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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