WOULD YOU COME to work for me for $150,000 a year? I’ve asked many jewelers this question and more than 60 percent answer “Yes!” For many, this would be a substantial raise in their pay. I’d also pay 100 percent of your medical expenses and I have a company 401K plan in place. The month of December is mostly time off for my company as it’s slow then.
So, would you work for me for $150,000 a year? You would? Great! You start June 1. Dress casually.
Oh, I forgot to mention. I only give out one paycheck and it’s for the $150,000.
I pay every year on May 31!
One Year Later, May 24
Hi, I have a small problem and wonder if you could ride this one out. I can’t pay you next week on May 31. It just hasn’t been a good year — competition and all. Can you hold out one more year, please? Great! I know someone will give us money this coming year and then I will be able to pay you the promised $150,000. Just hold on, as $150,000 is a boatload of money.
Two Years Later, May 24
Hi, I have a small problem again and wonder if you could ride this one out too. I can’t pay you next week. It just hasn’t been a good year (or two good years for that matter) — competition and all. I promise you’ll get the $150,000 next year if you can just hold out one more year. Great! I know someone will give us money this coming year and I can pay you the promised $150,000.
Just hold on and stay focused on the $150,000 because that’s a boatload of money.
Three Years Later, May 31
Phew! Thank the lord; we finally had a good year! I can now pay you your $150,000. In fact, I’m such a nice guy, I’m even going to pay the taxes for you. Here’s your check for $150,000 and it’s good, you can go right to the bank. I’m happy and you’re happy.
Five Minutes Later
Me: What seems to be the problem?
You: I’m short.
Me: Yes, I know but that has to do with genetics, why is this my problem?
You: No, the problem is I only got $150,000.
Me: That’s what I promised you and I paid up, in fact I paid the taxes too.
You: Yes, that’s very kind but I’ve been sitting in this company for three years and I expected to get $150,000 each and every year I sat here. I should have received $450,000, not $150,000.
Me: Listen, I know people who’d die to work here for me and get a check for $150,000 for a year’s salary!
You: I lost $300,000 not being paid for the first two years! Heck, three years ago Smith & Co. offered me $75,000 a year to work for them. It was a discounted salary compared to what you promised me, but at least I would have received $75,000 a year, and in three years I would have collected $225,000 rather than your $150,000. Just working for Smith & Company, I would have received $75,000 more. Working for you and waiting to get paid has caused me to have a large accounts payable, saddled me with a lot of credit card debt, meant I’ve been unable to upgrade my home and car or put any money away for retirement. I’m really stressed out.
Me: Welcome to my world!
Reality
In this scenario just replace being paid an annual salary with the idea of earning gross profit dollars from inventory each year.
In the same way that you might be able to wait a year to get a good salary check, waiting for three years is tough, isn’t it? And you probably wouldn’t mind waiting even three years if you thought you’d get $450,000.
Yet I only paid you one year’s salary for those three years.
Move the decimals over, my friend. Don’t look at $150,000, see it as $1,500. That’s the gross profit per year you’d receive from selling one diamond bracelet, for example. It costs $1,500, you keystone it to $3,000. You wait one year for it to sell and you get your “salary” of $1,500 (the gross profit).
If you sell it each year, you would collect $4,500 in three years. But if it takes three years to sell, you’d have only $1,500 rather than the $4,500 you expected in three years. You’d be short $3,000 because you waited and it did not sell.
It’s exactly like working for me and getting paid only one year’s salary every three years. And yes, in this case you would have been better off to have a discounted profit (or a lower salary) once each year for three years. You’d have more money.
In other words, if you can’t make a year’s salary (gross profit) find another job. Or deep-six the item and find a saleable product to replace it. Or just take the lower salary (gross profit) and pay your bills.
Read this story again. Replace “salary” with “gross profit” and where you see my employee talking about his debt, think about yours. His debt came from not being paid yearly. Your debt comes from not selling the item yearly.
My new employee eventually got his full salary check, but just like those of you who think you come out ahead if you sell a three-year-old item for full price, you didn’t. You lost money. And a lot of it.
You’d be better off right after the first of the year to find another job (item), even if it pays less. When it comes to inventory, you’d be better off accepting a lower profit (discounting it) and replacing it with a better performing “job” (item that will sell quickly).
The position is still open by the way. Can’t figure out why I can’t fill the job. Oh well, someone will eventually buy it … I mean, apply for it.
This story is from the May 2007 edition of INSTORE.