Riding the Margin
The late Jon Hardy defined dive store management as “Customer satisfaction at a profit.” Most of us devote the majority of our time and energy to the customer satisfaction part. Doing so is meaningless, however, unless you make a profit to go with it.
The good news is, making a profit needn’t take a lot of time or energy. You have to be willing to work at it, however. You have to be willing to take the time needed to track and analyze the factors that affect profitability, then act on that information. Often the difference between stores that make money and stores that don’t is that the owners of the profitable stores make profitability a priority.
At first glance, making a profit should be easy. After all, if you buy a pair of fins for $50 and sell them for $100, you’re making a 100 percent profit — right? (Okay, the sharper among you immediately recognized you’d be making a 100 percent mark up and a 50 percent profit.)
It’s more complicated that this, however. Selling those fins cost you a lot more than the $50 it took to buy them from the manufacturer. Case in point:
- You may have had to pay shipping to get the fins from the manufacturer to your store.
- Whether you borrowed money to pay for the fins or not, you are still effectively paying interest on that $50 while the fins are tied up in inventory. Even if you paid cash for the fins when you bought them, you are losing the interest you could have made had that $50 been sitting in the bank rather than on your shelf in the form of rubber goods.
- You have to rent floor space to store and display the fins, and pay to light, heat, air condition and insure them.
- You have to pay yourself or an employee to sell the fins for you, either in the form of salary, commission or both.
- If the fins are damaged or stolen, rather than sold, a portion of what they cost you has to be charged back against the sale of other merchandise.
By the time you pay for all these direct or indirect costs, you are no longer making $50 on the sale of a pair of fins. In fact, if you’re making between $5 and $10 before having to pay the IRS, you may be lucky.
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