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Laurie Owen: Learn What It Takes To Be Top Dog

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First part of three-part series: To be in the Top 25% for efficiency in all areas will help you earn the most money.

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[h3]Learn what It Takes To Be Top Dog[/h3]

[dropcap cap=E]ach year, we take the financial statements of our performance group members and sort them by how much owner’s discretionary profit (ODP) they make as a percentage of sales.[/dropcap]

ODP is defined as net profit before tax plus owner compensation, divided by sales. This measures the profit of the business before the owner decides how much compensation to take out.

We take this top quartile and label them the “Top 25%.” This year, it took a minimum ODP percentage of 15.1 percent to make it into the Top 25%, or in other words, they had to keep at least 15.1 cents in ODP for every dollar of sales they generated.

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Their secret? Efficiency. While there was no one single factor causing the additional profits of the Top 25%, managing expenses more efficiently in every area paid off big time.

The biggest impact was in cost of goods sold, which includes merchandise, freight and labor for craftsmen or repair people. Best practices require buying the right merchandise for the right cost, controlling inventory shrinkage and setting the right price. These practices led to a gross margin that was 2.6 percent higher than the “all company” group. If you apply this 2.6 percent difference in margin to median sales of this group of $3,418,410, the result is over $88,000 in additional profits.

Their expenses were lower in all other key areas, including:

Selling expenses of 16.9 percent of sales, or 1.4 percent lower

Occupancy expenses of 4.5 percent of sales, or 0.4 percent lower

—  General and administrative expenses of 8 percent of sales, or 4.4 percent lower

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Added together, this 6.2 percentage difference in total expenses resulted in $212,000 in additional profit. Most of the savings came in lower general and administrative expenses, specifically lower administrative and support wages.

All sales categories were represented in the Top 25%, with companies over $8 million representing only 10 percent of the top performers, even though they represented 18 percent of all study participants. Con-versely, companies with sales under $2 million represented half of the Top 25%, even though they represented only 20 percent of the companies participating in the study.


Laurie Owen is senior vice president at Business Resource Services. Contact her at [email protected].

[span class=note]This story is from the July 2008 edition of INSTORE[/span]

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Gone Fishin’ (Thanks to Wilkerson)

Whether you want to go fishing — or enjoy some of the other good things life has to offer — you can take a cue from Jim Adair and choose Wilkerson to run your retirement sale. After 38 years in business, Adair decided it was time to enjoy some free time. His Missoula, Montana store, Adair Jewelers, will stay in business but without him at the helm. It was the perfect opportunity to call in the experts in retirement sales. Adair says he spoke to a lot of people who have done retirement sales to help him make his decision and he chose Wilkerson. “Wilkerson seemed to have the best set up, the best organization, the most current marketing of any of them,” he says. “If you want to run a successful sale, you have too much money on the line to be screwing around with trying to do it yourself.”

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Laurie Owen: Learn What It Takes To Be Top Dog

mm

Published

on

First part of three-part series: To be in the Top 25% for efficiency in all areas will help you earn the most money.

{loadposition laurieowenheader}

[h3]Learn what It Takes To Be Top Dog[/h3]

[dropcap cap=E]ach year, we take the financial statements of our performance group members and sort them by how much owner’s discretionary profit (ODP) they make as a percentage of sales.[/dropcap]

ODP is defined as net profit before tax plus owner compensation, divided by sales. This measures the profit of the business before the owner decides how much compensation to take out.

Advertisement

We take this top quartile and label them the “Top 25%.” This year, it took a minimum ODP percentage of 15.1 percent to make it into the Top 25%, or in other words, they had to keep at least 15.1 cents in ODP for every dollar of sales they generated.

Their secret? Efficiency. While there was no one single factor causing the additional profits of the Top 25%, managing expenses more efficiently in every area paid off big time.

The biggest impact was in cost of goods sold, which includes merchandise, freight and labor for craftsmen or repair people. Best practices require buying the right merchandise for the right cost, controlling inventory shrinkage and setting the right price. These practices led to a gross margin that was 2.6 percent higher than the “all company” group. If you apply this 2.6 percent difference in margin to median sales of this group of $3,418,410, the result is over $88,000 in additional profits.

Their expenses were lower in all other key areas, including:

Selling expenses of 16.9 percent of sales, or 1.4 percent lower

Occupancy expenses of 4.5 percent of sales, or 0.4 percent lower

Advertisement

—  General and administrative expenses of 8 percent of sales, or 4.4 percent lower

Added together, this 6.2 percentage difference in total expenses resulted in $212,000 in additional profit. Most of the savings came in lower general and administrative expenses, specifically lower administrative and support wages.

All sales categories were represented in the Top 25%, with companies over $8 million representing only 10 percent of the top performers, even though they represented 18 percent of all study participants. Con-versely, companies with sales under $2 million represented half of the Top 25%, even though they represented only 20 percent of the companies participating in the study.


Laurie Owen is senior vice president at Business Resource Services. Contact her at [email protected].

Advertisement

[span class=note]This story is from the July 2008 edition of INSTORE[/span]

Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

Gone Fishin’ (Thanks to Wilkerson)

Whether you want to go fishing — or enjoy some of the other good things life has to offer — you can take a cue from Jim Adair and choose Wilkerson to run your retirement sale. After 38 years in business, Adair decided it was time to enjoy some free time. His Missoula, Montana store, Adair Jewelers, will stay in business but without him at the helm. It was the perfect opportunity to call in the experts in retirement sales. Adair says he spoke to a lot of people who have done retirement sales to help him make his decision and he chose Wilkerson. “Wilkerson seemed to have the best set up, the best organization, the most current marketing of any of them,” he says. “If you want to run a successful sale, you have too much money on the line to be screwing around with trying to do it yourself.”

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Most Popular