It’s not how much you make that matters; it’s how much you keep. If you want to keep more of the money that comes in your door, here are five steps that can bring an immediate increase in profitability.
Few things can do more to increase your net profitability — particularly over the short term — than trimming unnecessary expenses. Case in point:
- Let’s say your net profit before taxes on the typical equipment sale ranges between five and ten percent. (That’s what you keep after you not only pay for the merchandise, but also for expenses such as salaries, commissions, rent, lighting, heating, air conditioning, insurance, telephone, etc.)
- Let’s also say that your goal is to increase this month’s net profit by $1,000.
To achieve your goal you have two choices: You can either reduce expenses by $1,000, or increase sales to the point where your net profit before taxes goes up by $1,000. Which is easier?
Let’s say you budget one hour of your time to reducing expenses by $1,000. Can you do it? Unless you’ve recently been through a round of cost cutting, odds are the answer is yes. Some examples of how you might accomplish this could include:
- Adjusting your thermostat to reduce heating/cooling expenses.
- Implementing a telephone use policy designed to decrease your monthly phone bill.
- Cutting back on staff overtime or part-time employee hours to reduce payroll expenses.
- Eliminating advertising and promotional expenses that have not proven to pay for themselves.
The longer it has been since you last evaluated the return you get on these outlays, the more likely it is you will find ways to save money.
In contrast, increasing sales to achieve the same increase in profitability is likely to require a lot more work. For example:
- If your net profit before taxes on product sales (what is left after you deduct the cost of merchandise, rent, utilities, salaries, commissions, insurance, etc.) is ten percent, you will need to increase product sales by $10,000 this month to result in a $1,000 increases in profits.
- If your net profit before taxes on sales is just five percent, you will need to increase this month’s sales by $20,000 to achieve the same result.
Assuming you are already doing everything you can to maximize sales, your odds of getting and additional $10,000 to $20,000 are fairly slim. In contrast, cutting expenses by $1,000 can be comparatively easy.
The previous example assumed you are already doing all that you can to maximize sales — but are you really? Ask yourself:
- Have you and your staff been through formal sales training?
- Do you and your staff actually make use of your sales training on a daily basis?
- Do you and your staff have a common set of features and benefits you present to meet customers’ needs — and a consistent way of overcoming common objections?
- Do you take the initiative in closing sales? (Or do you simply wait for the customer to decide?)
- Is your sales staff on commission? (Or are you paying them, instead, to not sell?)
- Are you taking advantage of all of the advertising and promotional opportunities that have proven themselves effective? (i.e., Yellow Pages, direct mail, e-mail, website, handouts/flyers, etc.)
If you can honestly answer Yes to all of these questions, great! If not, then these are opportunities that can immediately increase both sales and profitability.
As a generalization, dive store owners tend to focus primarily on the profit margins associated with big ticket items, such as BCs and regulators. Analyze your products sales, however, and you will likely discover that it is smaller items, such as masks, snorkels, fins, t-shirts, coffee mugs and dive lights, that may account for the majority of your sales.
Now ask yourself, to what degree does price play a factor in whether or not these products sell? The answer is, not as much as you might think. Granted, few customers will buy a $51.95 t-shirt; however, if the difference in price is between $28.95 and $29.95, that extra dollar will have little impact on whether or not the item sells.
Bear in mind the following:
- Consumers seldom comparison shop price on items costing less than $50 to $100. They also have little idea what the MSRP is for these items.
- For items in this price range, factors such as color, size, selection, convenience and immediate availability may play a larger factor in a consumer’s willingness to buy than price will.
- Even if you operate on a gross margin of 50 percent, your net profit before taxes on product sales — once you pay for shipping, salaries, commissions, rent, heating, lighting, air conditioning, insurance, etc. — may be as little as five to ten percent (if you are lucky).
- If you increase the selling price of an item by as little as five percent (say, from $18.95 to $19.95), you may as much as double your net profit before taxes on product sales.
Re-assess how you price the products you sell. There is nothing that says you can’t sell for more than the MSRP — particularly on items for which price has little impact on product sales. Why not take advantage of this fact?
Even if raising prices has a moderately detrimental effect on overall sales, consider the net effect. If increasing prices doubles your net profit before taxes, sales can decrease by up to half before you stop coming out ahead. It works for brands such as BMW and Mercedes — why not for you?
Move Unwanted Inventory
In an ideal world, every item we stock would fly off the shelf with nothing less than amazing speed. Then there is reality.
All of us find ourselves with inventory we don’t need. Perhaps it is leftover sizes and colors from an item now discontinued. Perhaps it is items we never should have stocked in the first place (what were we thinking?). In any event, these are items that simply will not move in a timely manner if left priced and promoted “as is.”
Unwanted inventory creates a variety of problems.
- It ties up money that could otherwise be invested in merchandise, programs or services that do a better job of creating profits.
- It occupies valuable space.
- Its presence may confuse customers and inhibit sales by cluttering the number of choices available.
Assuming you don’t replace unwanted inventory with equally undesirable merchandise, any money you make from it may put you ahead. So how can you make this stuff simply go away? Here are three possibilities:
- First, the obvious: Lower the price. This is often all that is needed.
- Another possibility: Include the unwanted items as part of a larger package to increase the package’s perceived value. (This may be preferable to simply offering the package at a discounted price.)
- Third possibility: Look for alternative means of disposing of the unwanted items.
A dive store I know once found itself with an overstock of unwanted travel luggage. These were not dive-specific items, but rather fanny packs, camera cases, backpacks and duffels that would be of interest to any traveler.
To rid themselves of these items, once it became apparent they weren’t moving, the dive store took a booth at a local swap meet and offered these items at a discount off MSRP.
That’s all it took. What the store’s customers did not want the general public did, causing the unwanted merchandise to disappear in less than a day.
Get Customers Diving
There is a direct relationship between how much your customers dive and how much money they spend with you. The more your customers dive, the more you can increase both sales and profits. When customers dive, several good things happen:
- They buy new equipment.
- They replace old equipment.
- They get old equipment serviced.
- They rent the equipment they are not able to buy.
This is in addition to the money you make from the classes, trips or other activities that get your customers in the water.
“That’s great,” you say, “Everyone knows that, but…”
But what? Is it too cold outside to go diving? Is your next scheduled group trip not for another several months? (You do have one or more group trips scheduled, don’t you?) What is your excuse for not choosing to be successful? Consider:
- There are a lot of classes and activities you can sponsor that don’t necessarily involve getting wet and, therefore, do not depend on the weather. These include first aid/CPR, dive computer, equipment and fish ID classes.
- There are many other classes for which you can at least do the classroom and pool portion, even if you must postpone open-water training until later. These include rescue and leadership courses, Nitrox Diver training, and a host of specialties, such as underwater photo and video.
- So your next week-long group trip is still months away. Who says you can’t put together a long weekend trip on comparatively short notice? Much of the eastern USA is within an overnight drive of the Florida Springs and Panhandle. On the West Coast, dive boats operate year round. In the central USA, dive sites such as Homestead and Bonne Terre Mine are completely unaffected by weather. And you probably have a surprising number of customers who will pay to fly to destinations such as the Bahamas or Cozumel for three- or four-day weekend trips. Trips such as these tend not to have the space commitments associated with longer trips and, because they cost less, you can fill them on shorter notice.
- Don’t overlook the money to be made booking travel for individuals, couples and small groups. Many dive travel wholesalers are eager to help you with this.
The bottom line is, you won’t achieve greater profitability by sitting around waiting for it to happen. There are steps you can take right now that can help put money in your pocket immediately. You only have to choose to take them.