FEDA News & Views

FEDAMayJune2013

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By Jason Bader, Pr incipal Th e Distr ibution Team Jason @Distr ibution team .com hen I walk around conventions, I generally hear conversations regarding how the business climate is going. I hear a lot of talk about how sales are up or sales are down. In good years, there is a bit of chest puffing and general peacock behavior. In the down years, there is a whole lot of blame on the economy and other external forces. What I don't hear is a whole lot of discussion about profit or profitability. Sure,you might hear some comments about dwindling margins; but when was the last time you heard someone talk about success in terms of gross margin dollars? Isn't that what is really important? If I can draw a correlation to a golf analogy, "drive for show, putt for dough," aren't top-line sales really just for show? At a very young age, working in my family distributorship, the importance of gross margin dollars was drilled into my head. We occasionally talked about W 26 FEDA New s & View s sales when it came to an extraordinary order,but the next question out of every mouth was "how did we do on it?" In other words, did we make any gross margin on it or are we nurturing our charitable side? I think this awareness of gross margin came from an open attitude regarding financials and how income worked in the company. When your team understands how we pay for the operation of the company, gross margin begins to take on a whole new meaning. My brother and I spoke about this recently and he agreed. As the president of the company, he is the only one allowed to talk about top-line sales. It only becomes relevant when speaking with banking partners, accountants or legal advisors. A Group Effort I am currently working with a client on changing the mindset from top-line sales to gross margin dollars. Eventually, we will drive down to net profit; but for today, we need to start with the basic concept of gross margin importance. Part of the process had to begin with the owner. He freely admits that he falls into the gross sales trap. It's a big number. It's fun to talk about. It just doesn't do him a whole lot of good. When you want to change the mindset of the people that work with you and for you, it is important to talk the talk. The transformation with this client began with education. With the help of the owner, we gathered the team and discussed how the income statement worked. Although I had a basic income statement generated, based on actual year end numbers, we needed to make sure they understood the concept. When I discuss income statements in any teaching setting, I typically use the dollar bill trick to get the point across. (If you've read my articles, you're familiar with the strategy.) For those of you who haven't seen this done, here is the quick and dirty: Hold up a dollar and tell the group that we just sold something for a dollar and we paid the supplier 75 cents for it. Tear off about three-fourths of the bill and drop it on the floor. By the way, if you use a larger denomination, continued on page 28

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