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David Geller

David Geller: Seeing Green

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The right pay structure makes your sales manager a partner in your business without signing over your shares, says David Geller.

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[h3]Seeing Green[/h3]

[dropcap cap=T]here are two very important job descriptions in a jewelry store:
Sales Associate: “To turn shoppers into buyers.”
Sales Manager: “To boost sales associates’ closing ratio and average sale.”[/dropcap]

Think about it. If your sales staff went from closing three out of 10 customers to four, that would be an increase in sales of 33 percent. If they increased the average sale from $300 to $400, that would translate to a 33 percent rise in revenues.  

Add those two factors together (increasing closing ratio by 1 more person per ten, and increasing the average total of each sale by 33 percent) and you get a whopping dollar increase. If your average sale is $300, and you sell three out of 10 people your sales would be $900.

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But if you sold four out of 10 people a $400 item your sales go up to $1,600 — a 78 percent spike that would have you laughing all the way to the bank. (And remember, that’s all while seeing the same number of potential customers.) Does this help you see the difference an effective sales manger can make?

[inset side=right]A sales manager should be paid upon the performance of the selling team. And by performance, we mean profits, not just increased sales.[/inset]

A sales manager should be paid upon the performance of the selling team. And by performance, we mean profits, not just increased sales. After all, anybody can offer huge discounts to sell to everyone … and send you on the road to bankruptcy.

So pay your store manager based on the gross profits of the store. The higher the gross profit margin, the more of the gross profit dollars the sale manager will receive. You could easily add in a formula that provides a larger bonus if sales increased in addition to profits. (One key thing to remember: we pay off of gross profits, which is sales minus cost of goods. We don’t pay off of the net profit; as sales managers don’t generally have control over all of a store’s expenses.)

The first step is to decide what percentage of sales you will pay your store manager. A typical store manager might be paid three percent of total store sales. As many of you do when paying sales staff, you break this up into a salary plus a commission. And again, that commission should be based on gross profits. After all, those gross profits are what you use to pay your bills.

To build your commission-pay package, set a target. For instance, a $2,500,000 store giving 3 percent of sales to the sales manger would pay $75,000 per year. This is the target income of your plan. Now, build a structure that assumes the gross profit margin you desire is met. I am using 44 percent. So we’d pay a base pay or salary of $45,000. The other $30,000 would have to come from a commission or incentive plan. The manager could make more than the $75,000 … and yes, they could make less.

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On the next page is a chart calculating potential scenarios, assuming $2,500,000 in sales.

So you’re done, right? After all, what else is there but making money? There’s lots more. I’ve seen plenty stores who make a 50 percent gross profit margin and still can’t pay their bills in January. Why? Because they have too much inventory and not enough “turn”. Turn is a subject I’ve written about before and we won’t get into it here. Simply, turn is found by taking the cost of goods for items sold from the showcase and dividing it by your inventory level. This will give you a number like “1.0” or “0.62”.  

You want a number greater than “1.0”, which means you sell your entire inventory at least once a year. If you have a number like “0.62”, that means it take you on the average 19 months to sell your entire inventory from the case. (The vendor gives you six months dating, and your customer buys it in 19 months. Makes it hard to make money, wouldn’t you say?) So increasing your turn will not directly make you more gross profits. That comes from sales. But it will improve your cash balance … since the stuff is not selling anyway. Increasing turn brings more dollars to your gross profit bucket and can reduce the amount of bills you’ll have to pay later. Just think what having another $100,000 grand in the checking account after paying your bills next year would mean.

[inset side=left]You could go further with this, adding in a compensation plan to give bonus for sales increases.[/inset]

So, encourage your store manager to increase turn by adding points to the “bonus percentage paid” if they achieve the goals you set. Here’s an example: for every .10 increase in turn (e.g. going from .70 to .80 turn), you add half of a point to the bonus percentage paid. Thus, in the case of a gross profit margin of 50 percent, the original bonus would have been 5 percent gross profit and, if the sales manager achieves their “turn goal”, should be bumped up to 5.5 percent. The final bonus would then be $68,750 — $6,250 more than the original $62,500.

You could go further with this, adding in a compensation plan to give bonus for sales increases. After all, we all do want sales increases — as long as they’re sales increases that result in increases in our gross profit. So, if you set a sales goal of $200,000 per month, you could offer a .5 percent increase in the bonus percentage paid for each 10 percent by which you exceed your sales goal. (And if you want to penalize the sales manager for failure to reach sales goals, you could similarly subtract .5 percent from the bonus total for every 10 percent that you fall below your sales goals.)  

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Run the numbers for your business and see what a compensation plan like this could do for you. Then, make your sales manager a partner … without signing over your shares.

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 March 2004 edition of INSTORE[/span]

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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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David Geller

Close More Sales, Courtesy of David Geller’s Uncle Irv

These four “tricks” from an old sales pro will help you make more money in your store.

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MY UNCLE IRV WAS the No. 1 car salesperson for every single dealership he ever worked for. When he retired in 1987, he was the No. 1 Jaguar salesman in the United States. Here are some tips I learned from Uncle Irv that will help you make more sales today.

TRICK 1

My Uncle Irv had a Rolodex, and while the salesmen on the floor waited for a “hot one,” Uncle Irv was calling his previous customers to see if:

  • They had friends looking for a car.
  • Their lease was up and it was time to buy.
  • They were getting tired of the older model he sold them years ago.

He made appointments while the rest sat around and waited.

Tip from Uncle Irv: Call your customers twice a year to just say “hi.” Contact them or their spouse about milestone dates for gift ideas.

TRICK 2

Uncle Irv fought in the Philippines, and at age 26, he was considered an “old soldier.” He told me they were preparing to go to battle and a 19 year-old started to cry. The sergeant came to the private and asked, “What’s wrong?”

“I’m scared, Sarge. I don’t want to go.”

The sergeant replied, “You don’t have to go, son. You just can’t stay here!”

In the 80s, I almost went bankrupt. Uncle Irv told me this story and said, “David, you just can’t stay here where you are now.” So, I got up enough gumption, fired half of my 16 employees, started over, developed the price book, and a year later, started to make it back.

Tip from Uncle Irv: You can’t keep doing things the way you have been. Times are changing and you must change, too.

TRICK 3

When Uncle Irv was the sales manager of a big Chevy dealership here, he had to motivate and train the sales staff, but also give them confidence when times were tough. You’ve had the same feeling: it’s getting close to having to make payroll, funds are low and you’ll take any price to get money into the bank account. Uncle Irv didn’t want to have the salesmen look at a walk-in customer as their last meal ticket and give away the farm.

Out of his own pocket, he gave each salesman three $100 bills to carry around at all times. He wanted them to feel like they didn’t need the sale, so that they wouldn’t discount so much.

Tip from Uncle Irv: In one way or another, throw money and jewels at your sales staff. Make them feel and look richer, and they will sell better. I used to let my staff buy or custom-make any piece of jewelry at 10 percent above our cost and take it out of their paycheck over six payroll periods.

TRICK 4

Uncle Irv told me that many salespeople are afraid of silence. He said, “Tell the customer the price and then shut the hell up!”

Scenario: You tell the customer $1,495 for the ring, and then there’s silence. Twenty seconds go by and you’re thinking “OMG, they aren’t saying anything. They are going to bolt or go online. Maybe I should give them a discount; I need this sale.”

Meanwhile, the customer is thinking, “Hmm, let me see — rent is due Friday, car note next week, summer camp dues in three weeks. No — I’m OK, I can do this.”

The first person who breaks the silence will give up their money to the person on the other side of the showcase.

Uncle Irv also brought his lunch every day. He told me, “I can’t afford a $500 hamburger.” (You’ll get it.)

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