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COG's % -- What should it be?

Discussion in 'Picture Framing Business Issues' started by rosetl, May 31, 2001.

  1. rosetl

    rosetl CGF II, Certified Grumble Framer Level 2

    I thought it might be of interest to compile amongst Grumblers what percentage of sales our Cost of Goods Sold for custom framing is -- and/or what we think it should be/needs to be to maintain or grow a business. I've read anywhere from 20 to 35%.

    I'll be happy to post the results if you would E Mail me privately as I am sure all may not want the world to be able to see our individual results....and I won't tell anyone else! :)

    In my experience, for a custom shop it MUST be under the 35% figure, even with large volume shops. For years I shot for 30 -- and am now working at getting that down.

    Hope you are interested and curious, like me!

    TL - Studio Frame
    Glendale, CA
     
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  2. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    If you want to make money at framing your cost of MATERIALS should never exceed 30%.

    If you REALLY want to make money, it should be less. Our COMBINED cost of materials (which includes framing materials, posters, fine art, and photo frames) averages 28%.

    Note that I say cost of MATERIALS. In CUSTOM framing, we do not sell "widgets". We need to CONVERT the materials we buy into a sellable product. Therefore, a portion of our operating expenses related to producing the product we sell needs to be factored into the Cost of Goods figure.

    A benchmark industry figure is 52% including materials and labor.
     
  3. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    Rob's advice is seasoned and sound. His targets, including art and readymades, is admirable and almost assures profitable margins.

    But, before you raise every price to meet those goals, be sure they are competitive. Can you really mark up your art to those levels if your standard discount is 50%, or how about readymades?

    Be careful and make sure your prices are competitve on the items you have to be. Take extra mark up on those items that you buy better. And for goodness sakes, never price anything that you can't make money on. It's smarter to drop a line or a service than lose any money.

    For the record, our CoG runs about 35%.
     
  4. ArtLady

    ArtLady SGF, Supreme Grumble Framer

    Does 35% include artwork??

    ------------------
    Timberwoman
    AL
    I cut the mat, I pet the =^..^= cat.
     
  5. John Ranes II CPF GCF

    John Ranes II CPF GCF SGF, Supreme Grumble Framer

    For those of you who are PPFA members, you should have received in the mail recently the Comparative Business Analysis Project Survey.

    As a tool, it asks participants to share Sales, Cost of Goods Sold (Broken into all types), Gross Profit, and Operating Expenses. Members have been asked to complete this information by June 30th. Sent to an independent accounting firm, the results - full report should be released by mid-September.

    By comparing your performance with similar-sized busineses, you'll be able to answer such questions as:<UL TYPE=SQUARE>
    <LI>How does my profit compare to similar sized businesses?
    <LI>How does my rent expense compare to businesses that own a building?
    <LI>Is my revenue base sufficient to cover the expense of additional staff?
    [/list]

    http://www.ppfa.com/

    Regards,

    John

    ------------------

    The Frame Workshop of Appleton, Inc.
    www.theframeworkshop.com
    Appleton, Wisconsin
    jerserwi@aol.com
    --------------------
     
  6. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    Bob et all-

    Re: selling art and other "non framing" items-

    We rarely pay "less 50%" for posters, most often our discounts are much deeper, but we worked up to them after several years of proven relationships with vendors (and we paid our bills promptly!) Discounts such as 50% less 20% are out there and available if you work with your vendors. That is one of the primary reasons to regularly attend trade shows, to meet face to face with reps and owners of companies to cement relationships.

    Re: photo frames- Many companies have great deals running right now! La Marche just had a phenomenal sale - great discounts and 30,60,90 dating and free shipping. Roma has a new quick ship program that gives 25% off and 60 day dating, plus free shipping. These discounts (especially the free shipping, easily worth $60-$100 for my orders) mean much greater profits. One frame that normally wholesales for $18 costs $12.60 on the sale and we still retail it for $37.50. And yes, we are competitive at that price because of the way we merchandise, stock and display our frames. We will sell at least $120,000 in photo frames this year.

    Another inportant point is how often you buy. La Marche gives free shipping with a 100' order. So does Studio. (and they give a 3% discount if you charge to a credit card.) Larson delivers for free with a $50 order and if the invoice is over $500 gives a 5% discount if the bill is paid in 20 days. Combining orders and delaying delivery dates to customers by even a day can mean a significant increase in profit.
     
  7. JRB

    JRB PFG, Picture Framing God

    We keep our cost of goods at under 30%. This includes materials used in framing and merchandise purchased for inventory. Does not include tools, blade sharpening, office and bathroom supplies etc.
    It varies monthly and works out about the same as Rob's on an average. Our gift and photo frame, prints and artwork purchases are controlled by that 30% ceiling on our budget.

    John
     
  8. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    Rob-We've compared discounts on posters before, and if you do any volume at, you are absolutely right. Do you or anybody else do better than 50% on LE. By the time we factor freight, we are lucky to average 60%. Even at 50/20, you still have to adjust some of your framing components to offset these amounts. I was trying to caution those from using static multipliers.

    But, for the rest of your advice, it is right on.
     
  9. rosetl

    rosetl CGF II, Certified Grumble Framer Level 2

    Hi All! I'm glad to see that there was some vigorous dialog on this subject - but sadly report that there was little participation other than what you've already seen.

    If any of you change your mind, I'll be happy to report the findings.

    So far, it comes up 30% across the board.

    And, as a reminder, mixing in other types of sales besides custom framing (where there is light manufacturing -- not just sales) most likely will mean a higher percentage COG....and lower labor costs.

    Thanks to all who posted and/or e-mailed me!

    TL - Studio Frame
    Glendale CA
     
  10. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    John-Thanks for the heads-up on the report planned by PPFA. I applaud their effort and hope it is of value.

    May I ask if you are involved in the methodology of this survey? I hope so. And I hope it has some meaningful responses. But I have to be honest when I say that even a prestigiuous independent accounting firm will probably do nothing more than collate the data, not validate it.

    Such as the blanket 30% CoG, and the $50/hr labor charge, or the $150/average ticket price, these are bantered around so much I think they become the norm. Did you notice that the guesstimates for CoG were "around" 30%? I think way too often these figures are just that-guesses. No one saud last year my CoG was 31.82%, or my YTD is 29.35%. A simple look to the P/L's would answer this, but so much of this stuff puts people to sleep.For clarification, our 2000 CoG was slighlty higher than the "around" 35% of our targeted goal (due primarily to higher holiday purchases of inventory with much slower than expected holiday sales).

    So, I hope for meaningful results from this survey(and you know highlights will be parroted by the trade mags), I'm just a little skeptical.

    When I talk to others about percentages, so many are guessing and don't really monitor them. My hope is that PPFA will help folks understand how to measure these important figures, and most importantly why they are important to the daily operation of every shop.

    I hope you might be of some input to the folks at PPFA. I really think it would both helpful and important.
     
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