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David Geller

David Geller: Final Reward

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It’s time for maximum motivation. David Geller outlines different commission programs you can use in your store.

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[h3]Final Reward[/h3]

Most jewelers pay a straight salary or hourly wage and a pittance of a commission. The reason given is they don’t want the sales staff to be “aggressive.” I don’t know what your definition of a sales person is but I’ll give you mine: “Someone who turns shoppers into buyers”. That means not stopping when the customer says “Thanks, I’ll think about it and probably will be back”.

For my first 18 years in business, I paid hourly wages plus 1 percent commission on repairs and 2 percent on product sales. My staff cost me 12 percent to 18 percent of every sale. (The typical percentage for most jewelry stores should be around 10 percent of sales.) It took my company 18 years to get to $1.1 million in sales. The next year, I changed the sales staff to a straight commission of 10 percent and our sales increased by 45 percent to $1,450,000. Under the old system, my sales staff made $17,000 to $24,000. With the new system, their pay ranged from $42,000 to $61,000 per year … and one of those folks only worked four days a week.

Not every company can do straight commission as we did. But I do believe that a lucrative commission system is the best way to recognize strong sales staff. All you have to do is set the proper rules in place to be sure sales people aren’t obnoxious when it comes to being “aggressive.” We had an eight-page list of rules for selling, turnovers, whose sale it was and it worked out just fine. When your salespeople start making better money, everybody starts rubbing each other’s backs. It does work.

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Here are some ideas for commissions for sales staff, with pros and cons listed as well as advice for implementation:

[componentheading]STRAIGHT COMMISSION AGAINST A DRAW[/componentheading]

[h4][b]Pros[/b][/h4]

1.) Rewards sales staff for increasing sales;
2.) Lowers the company’s cost and evens it out over the whole staff;
3.) The draw helps when times are slow, which must be paid back when times are better;
4.) Giving raises is no longer an issue; 5.) Staff salaries as a percentage of sales is fixed.

[h4][b]Cons[/b][/h4]

1.) Can bring out aggressive tendencies in the staff, especially without a system in place;
2.) You have to track numbers so you can pay the percentages;
3.) Discounting should be addressed, with a smaller percentage paid if your staff does this. This has to be tracked;
4.) Not a good system if the owner is the major sales person in the store. The staff might be costing way over 10 percent of sales because they handle mostly small sales and repairs while the owner handles larger sales. You can’t pay full commission to have “helpers” for the store owner.

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[h4][b]System[/b][/h4]

1.) Pay a draw against commission. Shouldn’t be over 60 percent of what you’d normally pay a sales person;
2.) Draw is figured as if it was regular pay, meaning overtime is paid;
3.) Each pay period you pay draw or commission, whichever is higher;
4.) Usually the commission amount is 10 percent of sales at a range of normal selling price. You could pay 10 percent of the sale as long as discounting isn’t over 15 percent. For 16 to 25 percent discounting, commission would be 6 or 7 percent of the sale;
5.) Stores doing a large volume and having high-caliber sales staff would want to pay 7 percent of sales. It’s not unheard of to have a sales person making $75,000 to $100,000 per year at 7 percent commission;
6.) “Average” weekly pay is the amount you use for holiday, vacation and sick pay;
7.) Returns go against your pay if returned within the company’s refund policy timeline;
8.) Split the commission if two people help the same customer on the same day;
9.) For low-margin products, like diamonds, reduce commissions by 50 percent.

[componentheading]HOURLY RATE OR SALARY PLUS COMMISSION[/componentheading]

[h4][b]Pros[/b][/h4]

1.) Easy to understand and figure;
2.) Assures consistent paychecks;
3.) Reduces stress and aggressiveness;
4.) Don’t have to tabulate draw.

[h4][b]Cons[/b][/h4]

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1.) Not as motivational to the staff, as commission checks under this system are not usually large enough to make a difference in one’s lifestyle;
2.) Raises are still an issue;
3.) Giving raises along with paying commissions can increase your total cost of a salesperson;
4.) Splitting commissions almost negates the effect of a commission.

[h4][b]System[/b][/h4]

1.) Pay a percentage of total sales plus their regular salary;
2.) Split commission as mentioned in #1 above;
3.) Refunds as with above;
4.) If commission amount is 2 or 3 percent, there’s no need to reduce commission percentage for low-margin sales.

[componentheading]PERCENTAGE OF GROSS PROFIT[/componentheading]

[h4][b]Pros[/b][/h4]

1.) Employees become your “partners”, so to speak, in profits;
2.) Reduces the tendency to discount;
3.) Sales costs are fixed;
4.) No need to figure different margins, one commission rate will suffice.

[h4][b]Cons[/b][/h4]

1.) Employees will have to know your cost of goods. Some stores don’t like sales staff to know their costs;
2.) Difficult to figure cost on repairs and custom design. Solution is to figure keystone, even though it may not be;
3.) You might still have to pay a draw against percentage of gross profit;
4.) If the owner gets a large portion of total sales, it will again be difficult to have the employees “buy into” the program as they don’t get a chance to sell the big pieces.

[h4][b]System[/b][/h4]

1.) Pay 15 to 20 percent of the gross profit of the sale;
2.) If the item cost you $125 and it sells for $275, your gross profit is $150. If you paid 15 percent of that, the “commission” would be $22.50. (Happens to be 8.1 percent of the selling price);
3.) Typical number used is 17 percent;
4.) The percentage of gross profit you pay will be higher or lower depending upon in “general” what your store’s overall gross profit percentage tends to be.

[componentheading]SALARY PLUS BONUS FOR LEVELS ACHIEVED[/componentheading]

[h4][b]Pros[/b][/h4]

1.) Provides a higher base pay, which means a safety net for the staff;
2.) Simple to administer;
3.) Can vary the base pay for each level of expertise and still make your own system for costs to be about the same for each person who sells.

[h4][b]Cons[/b][/h4]

1.) At low selling levels, your costs as a percentage of sales will be a little higher;
2.) Works well if the owner doesn’t sell the most. If the owner sells more, then you’ll have to give a higher base to employees, which increases your cost of sales staff.

[h4][b]System[/b][/h4]

1.) Pay a set dollar amount of salary or hourly wage per month;
2.) If you pay salary, you can’t adjust for overtime, so it’s advisable to turn the dollars per month into hours. Example: if you would pay $2,400 a month in salary, equate that to about $14 per hour; 3.) Give bonuses for each increment achieved during the month. As the sales person reaches increments of $2,400, give them a $100 bonus. When they reach “plateau” numbers, increase the bonus to $200; then $300, capped at $500.  

[componentheading]TEAM SELLING GOALS[/componentheading]

[h4][b]Pros[/b][/h4]

1.) Less pressure for the staff;
2.) Good plan when owner does a large portion of store sales;
3.) If goals aren’t met, no bonus money is paid;
4.) Rewards everyone working as a team, including the owner.

[h4][b]Cons[/b][/h4]

1.) Decreases an individual’s incentive to excel;
2.) Some people might slack off, and let others pick up the slack.

[h4][b]System[/b][/h4]

1.) Have a two-tiered system. One bonus is paid if the store reaches its goal, and another if the staff reaches its own group goal;
2.) Find out what percentage the owner sells. If the owner makes 60 percent of total store sales, then that leaves 40 percent of the sales to be made by the other sales staff;
3.) Set your goal for the month based upon how much more you want to do over last year;
4.) On paper, pull out the percentage the owner should sell (e.g: 60 percent). This leaves the remaining 40 percent as the target for the other sales staff;
5.) If your salespeople reach their goal for the month, give them 4 percent of their total. (For example, if the store goal is $75,000 in sales and the staff is expected to sell 40 percent, their goal is $30,000. If they reach $30,000, divide up 4 percent amongst them based upon the percentage of the total hours they work (if three people work full time, they would divide up the bonus pot 33.3 percent to each person);
6.) If the store reaches its full goal (i.e.: the $75,000 mentioned above), then the sales staff now gets 6 percent of their share of their pot. So instead of getting 4 percent of $30,000, they now get 6 percent.

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 January 2004 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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