Paul Crow | COMMENT AND OPINION OPINION
PAUL CROW
The Ripples MD shares some of the secrets of how he succeeded in improving margins and profits in his business while still giving customers what they wanted and how he has learnt from the mistakes he has made over the years
Count the pounds not the percentages
We were selling what we liked, not what was good for the business. If a showroom had a good
relationship with a company, they sold those goods
Fast-forward 10 years to when the recession struck and I was in a different role with bigger problems. We had to move very quickly to re-evaluate our performance because footfall fell overnight and we knew sales would too. At that time, across the group, the gross profit margin ranged from 39% to 44% and although we were quite pleased with this, it wasn’t going to be enough to cover costs against the lower expected volumes. So, we evaluated how we were currently working and
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more importantly why we were doing it and we reached some core conclusions. I will share them with you, just in case you are having those same discussions today. We were selling what we liked, not what was good for the business. If a showroom had a good relationship with a representative or company, they sold those goods. We even had situations where two people in the same showroom would sell different products dependent on their personal preferences. Trading terms were being diluted by our own tastes. We were designing and selling bathrooms that helped
the installer increase his price, at the expense of our own. Sure, they were great designs, but in reality it was pushing up the installation cost, so they were taking products out of our quotes to pay for it. We were being too loyal to suppliers because it was convenient not to change and because we liked them. Loyalty was costing us money. We were too cheap. In many cases, we were spending so much time with the customer and putting in huge efforts and investment with our designs, service and showroom, and yet we typically stuck to the manufacturer’s RRP. We felt we were offering more than many of their customers, but were charging the same. We knew what our margin was and we reported on
it monthly in the management accounts. We didn’t know what it was at the point we made the sale and it was clear,
once we
studied it, that the numbers were often very
different. Our
sales staff had no idea of the margin – they were paid commission on the order value and to a point, didn’t care. So, as a group, we put in place
September 2019 · kbbreview
y first sale in Ripples was for three bathrooms all containing Sanitan’s Victorian suite and I had to give 20% off to get the order. One sale, one purchase order, and the customer would even collect it. Result. Five minutes later, my manager was calling me a lazy salesperson, telling me how my actions damaged the value of the company.
a plan to tackle these issues and worked as hard as we could to implement it quickly. Within a year, we increased our franchisees’ gross profits by 5%. Within two years, many had increased theirs by 8% and we even had one showroom recording 52% gross profit for the year against a turnover of over £1 million. Not bad when your overheads were £20k a month. We started with what we believed the customer wanted when they walked into the showroom and worked backwards to identify what we should sell them and from whom. If it was an existing supplier, we identified how we could switch turnover from those that were seen as the second choice.
Commitment We opened up our figures and our objectives to the suppliers so that they could be encouraged to invest – in new displays, training, marketing support, showroom rebates and, of course, better trading terms. We committed to keep their competitor out of the showroom. Quotations now included items our installers previously
provided. We became suppliers of grout, adhesive, lighting, extractor fans, wet-room tanking products and we found new suppliers that were delighted to work with us on this. In the case of under-floor heating, we switched from one supplier to another, but sold it at the higher retail price of the two. Our sales staff were nervous that customers wouldn’t buy these items from us, but we blitzed the training, put in place incentives, and they did. We fully embraced the EQ software system and pushed them hard to increase the portfolio of suppliers whose products were catalogued. They responded well and provided us with detailed costs for every product we sold on every sale, which helped eradicate silly errors that eroded the margin. We even changed the contracts of our sales staff and rewarded them instead on gross profit and immediately the mistakes, both small and large, decreased. Finally, one of the biggest lessons we learnt was that you can become a little too obsessed with gross profit margin and evaluate every sale based on the percentage. Our conversations were sometimes guilty of being focused on percentages, but not on the actual gross profit in pounds.
This takes me back to that first order and the hard time
my manager gave me about the discount. A year later, we were sat talking about it over a coffee and I brought it up as we reminisced. I asked him what he would have done in the same situation. “Same as you,” he said, “because it was good business, but you didn’t know why it was at the time.”
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