Here are a few quick questions that aren’t necessarily going to be the hit of your next cocktail party, but theywillprobably prove to be some good conversation starters at your next staff meeting:
1. How is gross margin calculated?
a. Subtract the gross profit from the cost of goods.
b. Divide the gross margin dollars by sales.
c. Add the cost of goods to the selling price.
d. Multiply the cost of goods times the number of items sold.
2. Which of the following statements is TRUE?
a. The higher the revenues, the higher the gross margin.
b. Gross margin is the same as bottom line.
c. Gross margin is usually expressed in a percentage.
d. Sales revenue minus COGS equals the bottom line.
3. In most wholesale distribution operations with a 2% net profit, in which area will a 1% improvement make the greatest improvement in profit?
a. Inventory turns
b. Unit sales
c. Operating expense
Don’t take for granted that all of your employees, especially those who make pricing decisions, are as comfortable with the arithmetic of wholesale sales as you are. In fact, there are probably a few “hot dogs” on your sales team who’d probably welcome the chance to show off their expertise and familiarity with these numbers to the rest of your employees. Consider hosting a lunch for your team members, asking them to answer these questions. But make sure theyshow their work, just like we had to do in 4th grade when we were learning long division (back in prehistoric times we didn’t use calculators).
In the business of wholesale distribution, in which average wholesalers bring in a whopping 2% net profit after tax, every dollar counts. And if you’re giving pricing decision authority to your employees, make sure they know what they’re doing to your bottom line. Don’t leave it to chance.
Don’t let them confuse margin and markup, and make sure they understand what the difference of giving in to that request for “just another 5” makes to your bottom line. Here it is, in black and white:
Bring it HomeIn this month’s print issue ofSupply House Times, you will find a catalog of training courses that teach these kinds of critical lessons. Take theEssentials of Profitable Wholesale Distribution©as a starting point, and see if you can identify a few people in your company who could use a refresher course. Or maybe you have a new team member or two that you’ve just promoted from the warehouse. Arm your salespeople with the information they need to become key contributors to your company’s bottom line. Chances are, they’ll welcome the opportunity, and will thank you for helping them build their skills.
Until our next conversation, check out further details on all of the training programs available from the ASA Education Foundation, and look for the free “How to Get Started with a Training Program” set of guidelines atwww.asa.net.