In 1990 when times were tough, two friends of mine and I were asked to document as many “belt-tightening” ideas as we could think of for a booklet that the National Kitchen and Bath Association distributed to its membership. I pulled this booklet out of my archives and want to share a number of thoughts we put together during that exercise. Some things just don’t change!

The two friends who helped me on that project were Ken Rohl, the owner and patriarch of the Rohl Corp., and Ellen Cheever, a great friend and one of the best-known folks in the kitchen and bath industry.

We knew that there are only three ways to improve the bottom line: first to grow sales, second to grow gross profit margins; and third to reduce expenses. The ultimate goal would be to do all three. But in really tough times like we’re experiencing now, that’s a lot easier said than done!

I will direct the “belt-tightening” ideas to the showroom business - but many would apply to the wholesale side or any small business - and will group them by areas of the business.

So you’re thinking: Okay, Darlington, how come you waited so long to share these gems? In all honesty, like many of you, I didn’t believe the economic conditions would fall as sharply as they have or that this situation would last as long as it evidently is going to. Nobody wanted this situation to happen and nobody enjoys the “belt-tightening” exercise. But it is what it is! You have to know that this too shall pass.

Let’s take a look at some things that will help you weather the storm in these tough economic times.

Overall Showroom Operation:

  • Sell more of the products you currently have on display.

  • Find new products that add to the mix. Diversify the products being offered. Become as much of a “one-stop shopping” source as possible.

  • Find more new clients. Market the showroom to homeowners, custom builders, remodelers, designers and architects.

  • Grow Your Gross Profit Margins:

  • Decrease the amount of discount you give off of list price.

  • Go to “your” net price and eliminate quoting discounts off list price.

  • Sell more of the non-traditional wholesaler products. Sell those that are semi-exclusive to you.

  • Learn how to sell to improve the margin. (There’s not enough room here to elaborate so I’ll go into more detail in a future article).

  • Push the products that earn the highest gross profit. Move your clients away from lower margin products to those that allow you to make more money.

    Cut Expenses:

  • Reduce your people costs. This is always the biggest number on the P & L. Eliminate overtime. Review perks and fringe benefits. Reduce salaries (90% of a job is better than none at all).

  • Negotiate a lower rent temporarily until things get better.

  • Be sure your marketing dollars are being spent effectively. Don’t cut back here - just be sure you’re getting the biggest bang for your buck!

  • Cut back on outside cleaning services - clean the showroom yourself (it’ll look better too)!

  • Review the showroom P & L in detail, looking for areas where you can save money. Remember, a number of “little things” can add up to big dollars.

  • Look closely at cell phone and long distance telephone costs. Can you save here?

  • Review dues, subscriptions and travel costs. This may be the year to skip annual conferences - a lot of people will!

  • Be sure you cover your incoming freight and delivery costs. Try to make a little.

  • Credit and Collections:

  • This probably is the responsibility of the Accounts Receivable Department, but being “good business tough” in this area is very important.

  • Have a complete open credit application form.

  • Be sure all new accounts are checked out thoroughly.

  • Do a personal guarantee on ALL corporate accounts.

  • Stop shipping when an account hits 45 days.

  • Sell more products directly to homeowners, getting at least a 50% deposit (many folks have gone to 100%). This eliminates the accounts receivable all together and should allow you to improve the gross profit margin.

  • Offer financing through a bank to customers that might need it. It won’t cost you anything and it may get you some jobs you might otherwise lose.

  • Get showroom salespeople involved in collections - they have the relationship with the customer.

  • Tie sales commissions to collections. If no payment, no commission. (I know you salespeople won’t like this one, but fair is fair)!

  • Exercise lien rights as applicable to your state.

  • Charge interest on past due accounts - and be tough!

  • Accept all credit cards (let the credit card company worry about collecting the money).

  • Inventory and “Tag and Hold”/”Work in Progress”

  • One of the really neat things about the showroom business is that it doesn’t require a lot of inventory. A big portion of the sales are special order - somewhere around 75% for many companies. But one of the areas that ends up being abused, in good times and in bad, is the “tag and hold” inventory: special order material that has been ordered, received and sits on the shelf. Here are some thoughts on this area:

  • Review your inventory of standard stock items. Sales are down, so inventory should be also. Make sure that you really do need to stock everything that’s currently on the shelf. Get rid of overstock, slow-moving and obsolete material.

  • Order jobs in phases. “Phase One” will be the rough material and tubs; “Phase Two” will include the rest of the finish products. Try to time each phase so the product won’t sit on your shelf for more than 30 days.

  • Communicate clearly to your clients exactly when they will need their products. Timing the order so the shelf time is minimized is your goal.

  • Have a policy that states you will “hold” material for 45 days. Anything over this must be paid in full and there will be a 2% (times the value of the product) holding fee after that. “Tag and hold” products can tie up a lot of money and space. Establish a policy and stick to it.

  • Be sure your RGA (Returned Goods Authorization) system is a well-oiled machine. You can lose a lot of money by not doing a good job in this area.

  • Have a fair (for both the company and the client) return goods and restocking charge policy. Then enforce it!

  • Have a purchasing system that allows you to maximize all of your purchasing for the best quantity buy discounts and freight allowances.

  • Make sure you have negotiated the absolutely best purchase terms (multipliers, volume rebates, cash terms, co-op dollars, etc.).

  • Join a buying group if it makes sense. Pick the one that makes the most sense for your company.

  • Marketing:

  • Keep in close touch with your really good past customers. Be sure to thank them for their business and encourage them to keep using you. Don’t be shy about reminding them why you are the best source and resource.

  • Recognize that new construction is very soft and will probably continue to be for a number of months to come. Develop a system to go after the remodel business - yes, smaller jobs - but they should be more profitable.

  • Market strongly to homeowners, designers and architects. Be creative with promotions and advertising.

  • Utilize every co-op dollar to your best advantage.

  • Diversify the products and services being offered. Don’t be afraid to step out of the traditional plumbing box.

  • Make your building, landscaping and showroom as customer friendly and appealing as possible.

  • Keep products on display up-to-date.

  • Have a great quote follow-up system and use it!

  • Identify your personal and company value points and “sell” them to your prospects.

  • Develop a lead follow-up system and use it!

  • Hone your selling skills.

  • Develop an annual marketing plan which includes a monetary budget and what, when, where and who.

  • Know what your competitors are doing and do it better.

  • Have a customer-friendly telephone answering system. A real live voice is best!

  • Establish customer-friendly hours of operation. This may mean being open on Saturdays and one evening a week. Remember, driving up sales is one of the three keys to becoming more profitable.

    As you know, I do a lot of consulting with plumbing wholesalers and independent dealers. With rare exception every one of my clients is feeling the effects of these “tough times.” I feel that pain, too. I also know that it could be worse. It isn’t a terminal health issue; it isn’t the loss of a loved one; it’s simply a very difficult business environment. As I said earlier, “this too shall pass”! Work hard, work smart and keep the faith.