Penny-wise, pound-foolish

By Carl Tompkins
March 1, 2008
RETAIL, AUTO : FINANCE, MANAGEMENT


Carl TompkinsEditor’s note: The following article is the final installment of a two-part series on steps auto glass retailers can take to address declining profit margins. The first article appeared on Page 14 of the January/February 2008 issue.

In my previous column, I offered advice on how to improve your bottom line in the face of shrinking margins. First, be objective in your review and assessment of industry conditions; then, commit to taking positive action. Support compliance with the Auto Glass Replacement Safety Standard. And spend your money wisely.

Another piece of advice: Don’t be penny-wise and pound-foolish. It is astonishing how often people break this rule. I hear, “The only thing the insurance industry cares about is price, so all I care about is buying the cheapest products possible.” I’ve seen companies buy cheap materials, only to incur a 20 percent increase in comebacks because the products failed to work. On the other hand, I’ve seen a company pay 5 percent more for a product and enjoy a 9 percent increase in business because of the value-added services its supplier offers.

Other suggestions to consider:

• When analyzing gross margins, focus on dollars per sale. It makes better financial sense to sell a product for $9 at a 30 percent gross margin than it does to sell a product for $6 at a 40 percent gross margin, assuming they both cost the same amount to stock, deliver and install. In this instance, the 40 percent gross margin provides $2.40; the 30 percent gross margin provides $2.70.

• Increase the value of the products you sell. Educate customers as to what they receive in return for their investment. Make sure your employees are well-versed in their industry, products and services. Customers who believe that all glass shops and windshield installations are equal will continue to seek the lowest price. Teach them to make value-based decisions. AGRSS is a great differentiation tool.

• Finally, never be held hostage by a customer. Big customers that know the loss of their business will cripple your company have little concern for your welfare. Diversify your customer base. It is always wiser to have 100 customers averaging $1,000 each in purchases than one customer averaging $100,000. It costs more to support 100 customers, but they will make value-based purchases at higher prices and remain loyal to your business if you support their success.

The author is western states area sales manager and national auto glass special programs manager with Sika Corp. of Madison Heights, Mich. He is also chair of the AGRSS Accreditation Committee. Write him at tompkins.carl@sika-corp.com.