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The Fallacy of the 5% prepayment discount

Discussion in 'Picture Framing Business Issues' started by Rob Markoff, Dec 1, 2009.

  1. Rob Markoff

    Rob Markoff PFG, Picture Framing God


    I absolutely do not advocate marking up prices to offer a 5% prepayment discount.

    I absloutely do not advocate offering a 5% prepayment discount at all-

    I agree that you should be able to raise your prices 5% period and make your prices stick.
  2. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    This is what you wrote:

    "Additionally, I have yet to see advertising advocates say (correctly) that prices MUST be raised in anticipation of running an ad or coupon or offer that provides any kind of discount in order to maintain gross margin. Can you tell me (if you have a 30% COG), and you run an ad promoting a 20% discount (without raising your prices), how much more volume you have to do to BREAK EVEN? Volume = INCREASED SALES, so it is possible to have increased gross dollar income with disastrous results."
  3. David N Waldmann

    David N Waldmann SGF, Supreme Grumble Framer

    I hear the price of tea in China is on the upswing.
  4. Jay H

    Jay H PFG, Picture Framing God

    Yes Rob we can and will continue.

    I'm sorry if you are bothered by my colorful language but I'm trying carefully to describe just exactly how "bad" I believe this advice is without being aggressive. You do not realize how little respect I have for the notion of using credit and especially credit cards as a daily part of business finance. It's out of respect for the G and you that try to church it up but still get my point across. I'll work on it if it pleases you but I don't intend to ignore it. I expect you'll do the same and that is well with my soul.

    Let me ask this. Do you think more people succeed in business and personally using credit as a part of their overall strategy vs. how many bow out leaving a wake of financial destruction and huge credit card debt? What percentage of people who end up in bankruptcy used cash and cash reserves as part of their everyday modus operandi? Do you think most people who do use credit cards pay them off on time? Do you think people are more or less responsible with their spending when using credit cards over check/cash? What percentage of frameshops do you believe pay a creditor more each month than they pay themselves? Do you think that debt was a major factor for many shops that have closed over the last few years or do you think many closed debt free?

    Again, I'm talking real life application here and not hypothetically or about you personally. If most people lost when playing with debt, credit card debt was the number one reason for bankruptcy in America, people using cash have fewer problems, most people carry a balance and very few pay them off every month, and people spend as much as 45% more when using credit, would you still suggest that it's wise to play a game that so few win?
  5. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    Yes Paul I did say that - but it is apples and oranges-

    I do say that if your marketing plans include the use of discount coupons, then your pricing needs to reflect the anticipated discount in order to maintain margins.

    I have never been an advocate of using discounts as a part of an effective marketing effort, though I do not deny that it can be effective in generating
    increased volume.

    Unfortunately, I have found that many do not understand how much increased volume is necessary just to break even (without adjusting prices in anticipation of the discount).

    And, while you could say that the same philosophy can be applied to offering a 5% prepayment discount to make it "work" from a monetary perspective, I do not embrace the philosophy of having to offer a pre payment incentive for timely payment hygiene.
  6. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    Thanks for clarifying your position, Rob.

    Nothing personal toward you or Jay Goltz, but I don't agree with the position that you and Jay, whose background is in accounting, take with respect to not discounting. I believe such a view tends to be a rather narrow, acounting approach that ignores the marketing aspects of discounting, ignores the competition, and fails to help framers build their customer base so they'll have more sales down the road. It's lead to an erroding of our prominance in the industry and contributed to failures that have shrunk the number of independent framers by about 50%.

    Our industry needs marketers, not mathematicians. Raising prices and focusing on percentages may provide short term relief, but ultimately it drives customers away. We need to respond to the competition, not ignore it, but that's exactly what has happened.

    You and Mr. Goltz have long established businesses, with a large customer bases. You can raise prices, milk your customer base and ignore attrition for a while. Those who lack that luxury are mislead by such an approach.

    For more than a decade, Jay has told everyone in earshot, "Don't discount!" During that time, the chain stores have chopped our industry in half and taken market share. Substantially raising prices is not the answer, because it drives customers away. Sure, you made a nice profit today, but what about tomorrow?

    Indpependent framers who are successful today are those who know how to market, and how to sell.
  7. Pat Kotnour

    Pat Kotnour SGF, Supreme Grumble Framer

    Thank you Paul, I couldn't have said it better myself.

    No Rob, I didn't miss a thing.
  8. surferbill

    surferbill SGF, Supreme Grumble Framer

    I tend to agree. Most of the experts giving the "don't discount" advice have either retired, sold their business, or have gone out of business.
    You do what you have to do to survive.

    Rob, I do a lot of corporate work, and to get the business I have to discount a heck of a lot more than 5%, yet I have managed to prosper and stay in business for 28 years.
    I would be willing to bet that you discount your corporate customers to get and keep their business.
  9. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    No Bill I do not "discount" at all to my corporate customers. Seriously. And I do not think we are selected for the projects we do because we are "the low price."

    To me, a "discount" is taking your regular, established pricing from either a predetermined set of charts, or programmed into a POS and then whacking some arbitrary percentage off and that is what the job sells for. What percentage? How was it determined? How were your prices even determined in the first place?

    And, we have a responsibility to the artists we represent that we do not negotiate or reduce the street price of their art. What their art sells for is what it sells for. We can't say that we will take the discount out of our percentage either. It is in our consignment agreement.

    For example, some may have an interior designer come in, and because they are an interior designer, they automatically get a 20% discount.

    For our corporate jobs, a significant amount of work goes into meetings, presentations, design, meetings, presentations, more meetings etc. so some of these larger jobs do require a significant amount of work. And just because they may buy 20-50 pieces, we don't just whack off a percentage. Something has to cover the design aspect and time spent. And that is factored into the bid.

    Now I will agree that there is economy in volume. And, if the same moulding is used on the entire job then there may be some savings by buying box vs length (or multi box). And a multi piece job may end up with different prices than a walk in retail single piece customer - but the price charged is grounded in FACT (actual costs) and not on some blanket discounted percentage.

    We just bid a 66 piece job - and we bid it the way we bid the majority of jobs, from the ground up or a cost plus basis. And, since there were multiples of several sizes, there was also an economy of scale that could be factored. So, if you were to take the pricing for an individual piece from the POS and compare it to what we bid the job for, yes the bid was less on a per piece basis- but there was not a specific percentage discount calculated from the retail selling point. And the difference in price between some sizes was such due to the size yield from the matboard (4 @ 16 x 20 vs 2 @ 22 x 28). For example, it takes more sheets of mat board to produce 4 @ 22 x 28 than 4 @ 16 x 20.

    Now, Jay H and others may argue that it (what we are doing) is a discount but I just don't see it that way.

    And please do not lump me in with Jay Goltz (who I do respect) as I never said I am 100% against discounting, nor do I discourage others from doing so. In fact, I believe that in today's economy it is a necessary evil and I have run coupons myself.

    Unfortunately, you seem to assume that all discounting is the same. And, worse yet, most framers that have failed have done so running discount coupons or sales (what's the first thing most do when business is slow, -cut their price) and most also do not understand the bottom line effects of pricing structure that were never establised with the anticipation of offering a discount.

    You have to gross a certain amount so that after all is said and done, there is money left over - after you have paid yourself a living wage. Your salary should not be what is left over. And, you cannot discount something so you have less than 0 left and wonder why you are not making any money.

    That is why I say that one of the three biggest signs of pending business failure is a period of increased sales. You could be doing a lot of work but going out of business without even knowing it.
  10. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    "That is why I say that one of the three biggest signs of pending business failure is a period of increased sales."

    Seriously? Well then, we're doomed. We're all doomed.

    Call me crazy, but I'll bet that most people going out of business aren't suffering from Increased Sales. In fact, I've never heard one person say, "Yup, sales just kept climbing and climbing...then, next thing you know...BOOM, all my sh**t's going on Ebay!
  11. Jay H

    Jay H PFG, Picture Framing God

    Rob do you have a retail store front? I know you did and it was my understanding that they or one or two or some closed..... If you don't mind me asking just what exactly is the current status of your shop? Does it do mostly commercial work? Do you have one or more retail store fronts? I can say from your posts that your interests have been in commercial work lately. Am I wrong?

    Please don't assume that you know what I think. Don't make "Jay H" synonymous with anybody who would disagree with you.
  12. Cliff Wilson

    Cliff Wilson SGF, Supreme Grumble Framer

    Actually Paul C, the framer on the other side of town was exactly that case. So busy she couldn't keep up, but couldn't pay her rent. She didn't want to tell me anything until she closed. Then, I started doing "margin calculations" with her and she was amazed. Negative margin on many jobs because she was "discounting" prices she didn't understand. -=- she's GONE

    What (I think) Rob espouses is disciplined analysis and calculation in your pricing and policies. A well planned an executed use of leverage is fundamental to companies that grow to any moderate size.

    The problem that I have seen with a number of business people (mostly non-framers, but I suspect the framer population is similar) is that they are incapable of the kind of thought process and discipline that Rob promotes. I find it refreshing and obvious, but I think in that kind of detail, most don't.

    Jay H has adopted a different kind of discipline that (I believe) is applicable to a minority of operators. If I operated as Jay suggests I would have a tough time making a sufficient compensation. However, there are a few local small business that are gone and might be around if they had adopted Jay's practices.

    What most of us fail to recognize is our own strengths and weaknesses. The reason owning a business is hard is that we have to learn to maximize profits and revenues while understanding and adjusting to our own individual strengths and weaknesses.

    Paul C, Aggressive marketing is necessary, but doesn't have to include "% off" type discounting.
  13. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    One thing I take issue with is someone who is not participating in this thread preaching to never discount. This same individual continually raises wholesale pricing and the last time I was on the retail website of this individual it was loaded with discounts. This fact was pointed out to me by another individual that is not participating in this thread.

    Just sayin'.:nuts:
  14. PaulSF

    PaulSF PFG, Picture Framing God

    OK, I just read the article. There's actually a lot of good advice in it, aside from the issue of the sidebar (the framer that gives a 5% prepay discount). So kudos to Jared for urging framers to collect money upfront. The folks that routinely collect nothing at all upfront are only hurting themselves, I don't care if they are in NYC or Mayberry RFD. And even the folks that routinely only collect half are making it harder to run their businesses. It's odd, when we talk about how the 50% deposit covers your material outlays, people will chime in about how frameshops have other expenses, and they'll mention things like rent, electricity, phone. Nobody ever mentions the most important thing that has to wait for that balance to be paid -- the owner's salary. Because if most of you are like me, you probably pay yourself last instead of following Wall Street Rules (which boil down to "I'm taking mine, the rest of you can go to h*ll"). So by not collecting 100% upfront, and then having to deal with slow pickups, you're actually making it harder to pay yourself.

    "How would you like to pay for that, cash, credit card, or check?" Practice it.

    Rob, a minor quibble. If you are charging a lower per-piece price for a commercial, multi-piece job than you would charge retail for the same design if someone brought them in one or two at a time, you are discounting. Whether it is characterized as a percent off, or dollars off, it is something off your normal retail price. And calculating from cost up doesn't really change that equation. That's really how we all should set our normal retail prices, but in the commercial multi-piece job, you are doing it again based on the specifics of that project. Just a minor quibble about terminology.
  15. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    Thanks, Cliff-

    That is EXACTLY the scenario I was referring to. Being extremely busy but producing negative margin jobs. Eventually it will catch up to you. But you won't know why you failed until the post mortem. And I said it was one of the signs of pending business failure. Running coupons can be a big contributor to this problem.

    To repeat the other two-

    A period of declining gross margins. Not NET margins, gross margins.

    Salaries as a percentage of sales begin to rise. (Sales are flat or down, but John has been with us another year so it is time to give him a raise.......) Where does the money come from?

    I have been through a similar situation at the onset of my business as well. I ran all sorts of discount coupons. And they were sucessful, meaning that many were redeemed and I had a LOT of work to do. I was a one person shop, then a two person shop, then a three person shop, etc. (and I was still living there too and I was not "Home Based" :) ) When it was all said and done, I had nothing left over because the pricing structure I was discounting from was a chart supplied by a moulding company that "everyone else" used. And that chart was not established in anticipation that I was going to offer a 20% discount. But the "expert" from the coupon mailing company said that I needed to run at least a 20% discount to be successful.........

    Re: the current state of my businesss. I have a 4500 square foot workspace/showroom that also has a loft, so I have a bit more space than I pay rent on. It is located in an industrial park and I have been at that location for over 25 years. My business was established there and it has easy access and parking. We developed a strong "retail" (walk-in following) in addition to a strong corporate base services by outside salespeople.

    At one time we expanded to 3 satellite design centers (+ all work was still done at the big space) but we closed the last "retail - strip center" location (after 20 years) because the rent was raised to $7,000 for a 1200 square foot space and we just could not justify the expense. That store was producing $425K per year but with the current retail economy and our projections for the future, it did not make economic sense. Same for the other locations, in San Diego prime locations command substantial rents and I do not think our model for retail picture framing continued to work.

    We have a beautiful showroom and many clients from our former spaces tell us they actually prefer coming to the industrial loaction because it is easier to get to and especially find parking (which was a major problem at our last space).

    Yes, our focus (at present) is primarily commercial, though we had a great walk-in day today. We are in the process of remodelling the showroom to add more photo frame displays and change the way we show moulding samples. (Finally adapting John Raines suggestion from many years ago to use triangular spinners like in his space. Much more efficient.)

    Jay H sorry to unfairly pin the "definition of discount" arguement on you- just a remnant from the Protect/Prevent fading arguement from threads past.....:)

    And Paul SF - I agree that paying a lesser price can be considered a "discount" but I need some method of demonstrating that I am not just whacking off a fixed percentage from a pre established chart.

    Side note: Barbara just returned from a meeting with a retirement community to do framed art for some public corridors. I asked her re: pricing and she said it was quoted "straight retail - right out of the book." So, absolutely no discount there :) She also says you all should take her class at the WCAF and buy her new book, which will be available at the show !!!!!!!
  16. Jared Davis CPF GCF

    Jared Davis CPF GCF MGF, Master Grumble Framer

    In this regard, I share the same thoughts as Paul. This I focus a majority of my articles and seminars on marketing, and on selling on the front counter... as this is where I see a significant shortfall & challenge to be, across the board in our industry.

    I agree with this wholeheartedly too, which is why I avoid clichéd “discount methods and tactics” in my marketing classes… I’ve come across far too many other great ideas that work for framers, without having to cover the simplistic approach of discounting.

    Everyone has different takes, different backgrounds, different experiences and different businesses, and without discrediting anyone, there is no perfect formula that works for all....

    I do, however, find myself in a rare & privileged position to be able to view and compare a large cross-section of businesses in my weekly travels, to allow me to be able identify what I consider to be more or less, "universal" issues.... and unfortunately for our industry, a lack of skills in marketing and selling comes up too often.

    Another small point I would like to make... please keep in mind, the "40 or so (?)" active users of this forum really don't represent the industry "as a whole" out there either... Just because you guys feel you "got it all worked out" when it comes to certain issues like extracting up-front payment... doesn't mean the other 5000+ picture framers do too... (don't quote me on that 5000 figure :) )..

    The ability to sell and market your product is just as vital for business success, as being able to "do the math"....


  17. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    We won't because if that figure was accurate by the time I hit the SUBMIT button on this post it would be 4,995.

    I believe that the single most contributing factor for closings is failure to get material costs under control. Those that continue to buy as they have in the past will incur additional price increases in materials and shipping fees.

    My material costs over the past two years have decreased almost every month due to the shrinking of the traditional chop shop purchases. Manufacturers need to move product even as they cut production. Less chops means more boxes sitting on shelves. Vendors that have sworn I could never buy at my price from them are swarming in my store now. Product is plentiful and prices are plummeting.
  18. JWB9999999

    JWB9999999 SGF, Supreme Grumble Framer

    Same here, though I don't do a month by month comparison. The only area where I have had any increase in material expense in 2 years is glass, as I began selling museum glass last year and added it to my stock. But all of my other material expenses have dropped, even though I've increased my moulding stocks by about 25% and my mat stock (very limited) by about 50%.

    And Jared's classes are my favorite each show. I take them each and every time, just for the ideas. Even those I've heard before, maybe I can pick up a new angle and apply it to my business. Great job, much appreciated!
  19. David N Waldmann

    David N Waldmann SGF, Supreme Grumble Framer

    You may be right, but it's hard to believe. You know, you guys have one of the lowest COGS in any assembly/manufacturing/craft businesses I'm aware of. 25-30% COGS seems to be the norm. This means that even if you get all your supplies for nothing you can only cut your price by 25-30% and still maintain your margins! I see SALES (at the right price) as being a much more important part of the equation for a frame shop. If you're sitting around all day posting on the Grumble because you have no work it doesn't matter if your COGS is 30%, 20% or even 0%. You're not going to generate the gross margin you need to keep the doors open.
  20. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    This is absolutely ridiculous.

    Do you and Rob actually believe that this woman, who was apparently smart enough to build a business with that many customers... and smart enough to stay in business for years, (because getting that many customers sure doesn't happen overnight)... suddenly became stupid enough to not see that her checkbook balance was dwindling, and couldn't possibly put two and two together?

    And lets not forget that her accountant and all of her friends would have to have been equally stupid?

    'Wanna buy some waterfront property cheap?
  21. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    My material costs run 12-15% depending on whether it is discounted or not. My prices are 1/3 of the typical frame shop. Nearly half of my competitors have closed and I have heard stories of quite a few exiting the industry after the holidays.

    I'm sitting on 100,000' of moulding and can stop buying for 6 months without a blip in the system. I have not advertised in almost 4 months now and have seen over 30 new customers this week alone. Most are finding me on the internet and my website is a train wreck. I publish my prices on the website so I don't have to give out estimates but rather just write invoices. Cash is king and price trumps marketing.
  22. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    For the record, and to clarify, I am not an advocate of Percentage-Off discounting for two reasons:

    1. I believe it reeks of insincerity. Percent-off discounts are simply not credible. We can thank the Always (BUT NOT REALLY) On-Sale Framers for that.

    2. If Michaels is claming 60%-off and 70%-off, what can you possibly do to trump that?

    I am an advocate of comparison advertising. If your prices are comparable, or even lower, than Michaels' sale prices, you need to let the public know it explcitly.

    I am an advocate of marketing, epsecially to first-time customers. Our industry has been foolish enough to concede an entire generation of new customers to the chain stores, because framers were duped into believeing that Michaels, et al, are "Bottom Fishing" and that when people want "Nice Framing" they will come to us.

    Guess what? They ain't coming to you, because ignorance is bliss. These people think Chef Boyardee is good Italian food and they can get it right out of a can. Also, the chains do as good of a job technically as many indies.

    Finally, and again for clarification, "discounting" doesn't have to mean "across the board". It can, and should IMO, be used judiciously.

    I just wanted to clear this up.
  23. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    My experience with that is the can doesn't scream and yell for 5 or 6 hours while it simmers. Just a personal observation from a previous marriage.:D
  24. Cliff Wilson

    Cliff Wilson SGF, Supreme Grumble Framer

    Yep. And, I don't think she is an isolated case.

    She bought a business from a gentleman that had been in business for more than a dozen years. She ran it for more than a dozen years. As near as I can figure out she didn't raise her prices the entire time. She was afraid to charge "too much" and would often calculate the price, then look up, and quote a lower price because the one she calculated "felt" "too high." (This I got from more than one rep!)

    As she got busier (Of course she was busy she was really LOW COST!) she started buying joins because she didn't have time to chop and join any more. She was "afraid" of losing a sale and would bid VERY low any job that had multiple frames in it.

    Paul, I didn't make this up. I don't think this is an isolated case.

    Sorry, but the more I get out and about (in my other role as Chair of our Local First organization) the more I realize that most people are just bad at math and bad at discipline. I don't think framers are exempt from that.
  25. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    Cliff, I wasn't implying that you made it up. I know and respect you and was certainly not questioning your integrity. The story was anecdotal however, and I doubted that many people who fail do so for that reason.

    Raising prices is difficult for any business owner to do, no doubt. Rob make a much more valid point when he says the declining Gross Profit is a warning sign. There's a delicate balance between sales growth, gross profit and net profit. The chemistry tends to be very delicate and unstable.
  26. Cliff Wilson

    Cliff Wilson SGF, Supreme Grumble Framer

    Ok, I agree, no one "accounting calculation" is necessarily bad by itself. It's the entire accounting system that needs to be evaluated to truly know what the health of a business is. I am sure I could construct a scenario where even declining Gross Profit isn't fatal. (For example, an increase of "non-labor" related sales as compared to the more labor intensive custom work we usually do.)

    I think you underestimate the ignorance of many business owners. (I'm not pointing a finger at anyone reading this!!! ;) )

    On a daily basis (yes, I said daily) I look at gross sales, gross profit (COGs), and net, compared to last YTD and Last MTD. Before I go home I make sure I understand what any variance is and if I should worry about it.

    This takes about 5 minutes. It takes discipline. I think this should be done at least weekly, but if you're not doing it monthly or more frequently, I'd be a bit nervous if I were you.
  27. David N Waldmann

    David N Waldmann SGF, Supreme Grumble Framer

    So if your COGS were double (more in line with typical frame shops), your price could still be 62% less than the typical frame shop and maintain your gross margin. Do you really think the difference between 62% less and 67% less would have that much difference on your sales? I sincerely doubt it.

    This numbers are based on the data you provided, I make no claim for their accuracy, only the math.
  28. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    One thing I know for sure David is that my current pricing guarantees that no customer ever walks with the exception of the true Wal-Mart customer. I give directions to Wal-Mart and M's if someone needs something cheap. Those that go to M's always come back (1 mile down the road next to Wal-Mart).

    I can change my prices anytime I want but am aquiring so many new regular customers that I will wait it out. Reductions in material costs are increasing my bottom line on a regular basis. I always get paid up front (with rare exceptions) and pay my vendors the same way (at time of delivery or within a few days).
  29. Cliff Wilson

    Cliff Wilson SGF, Supreme Grumble Framer

    It might, or not. Unfortunately, we need a LOT more detail and some base assumptions to have a reasonable guess.

    There are perception based price points that drive purchases. Yes, even frame shops are effected by this. If that 5% crosses Jeff's consumers perception barrier (his could well be different than mine or the guy in Manhatten) then it could significantly effect his sales.

    Of course, one would have to understand is marketing plan, his promotion history, his local market, his product mix, his local competiiton ...

    This is why this stuff is hard and what works for one of us may not work for the other. The trick is to take the nuggets that people like Rob and Jeff hand out and see how it applies to each of our own situations. Oh shoot, there we go needing math and discipline again :(
  30. JWB9999999

    JWB9999999 SGF, Supreme Grumble Framer

    But that 5% would come directly out of his profit, no? And it'd be a much larger percentage of that. Goes back to the 5% discount for pre-payment concept and how much it takes away from your profitability.
  31. Jeff Rodier

    Jeff Rodier SPFG, Supreme Picture Framing God

    As I have stated earlier there is no need for the 5% because I have the confidence to ask for full payment and state that it is store policy.
  32. JWB9999999

    JWB9999999 SGF, Supreme Grumble Framer

    Aye, I always ask for it too. No reason not too. Took some arm twisting last year to get my employees to do it, but now they do it with no problem.
  33. David N Waldmann

    David N Waldmann SGF, Supreme Grumble Framer

    No. His profit dollars would be exactly the same, because he'd also be raising his prices 15% (from 33% to 38% of the "typical frame shop" pricing). My point is that in such a low COGS business, getting the sales is much more important than material costs. Are they still important? Of course! I never said they weren't - only that they are not the number one priority. IMO.
  34. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    Paul C- please do not misquote me.

    I never said a decline in gross profit. There is a huge difference. One can much more easily see/feel the effects of a decrease in profit.

    Declining margins are only obvious from reading a series of operating statements.

    It is clear to me that (as those that have taken my class have proven) there are still many who do not understand the fundamentals of reading an operating statement, nor do they produce one on a month to month basis and analyze them.

    There are fundamental FACTS, mathematical laws, that can't be changed. The ratios always have to add up. 100% is always 100% and ZERO is a larger number than a negative number.

    You CAN show a profit on an operating statement and still have declining gross margins.

    For example, you receive a notice that the cost of a product has increased but you have not reprogrammed your POS so you just pass thru the net increased cost, or you sell a mat to a customer from one wholesale price category but they change their mind and want a different mat - and you are afraid they are at the tipping point, so you just charge them the difference in your wholesale cost between the old board and new one (because it is the same mouse click on the CMC to cut the mat).

    The bottom line may show that you have not lost gross dollars, but the right side of the operating statement will show that your gross margins have decreased.

    Gross PROFIT is not the same as gross MARGIN.

    Net PROFIT is not the same as net MARGIN.

    Too many are focused on the left side of an operating statement. Dollars can be blinding - and are less important than OPERATING RATIOS.

    Paul C- do you have an part of your school curriculum that teaches this? This is not intended to be a hostile or critical question. And I do not necessarily feel it is your school's obligation to teach it. But, I do think every framer would be a better businessperson if they had a fundamental understanding of how to read an operating statement.

    I admit that I had absolutely no idea of how to read an operating statement (or balance sheet) when I left the framer I was working for (after ten years in the industry) and opened my own shop. And there is no shame in admitting one does not. The shame is in knowing that you don't know how to and do nothing about it.

    And yes, Paul it ( Cliff's real life example) happens more in real life than you realize. And it is a SLOW death as many just do not understand why they are not making money. You do not have to go bankrupt to realize that it may be time to get out or do something else. What happened to Marc Bluestone's highly successful chain of 8 stores after he sold them to another operator?

    I am not going to teach my whole class on this board, but I will also tell you that in the class we empirically demonstrate the bottom line difference and effects between lowing your cost of materials (one way to increase profit potential) and increasing selling price. And we talking about less than 5%.

    And, there would be no way of seeing or understanding the quantitative effects of each of the strategies without looking at ratios and margins. So I am not misunderstood, it is important to control the cost of materials and one should do so. However, one will achieve a more rapid improvement in profit and especially in margin if the selling price is properly determined.

    You will see a bigger improvement to the bottom line from a 1% increase in selling price than a 1% decrease in cost of materials.
  35. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

  36. Puppiesonacid

    Puppiesonacid SGF, Supreme Grumble Framer

    ok i get what you all are saying. but don't we always ask our suppliers for a better discount? we never just accept what their offer is. larson gets away with it every day. their 20% off or better for their "partner customers" is nothing more than smoke and mirrors for their high prices.

    The fact is people always seem to expect to get a discount. esp now. and yes i believe if the customers don't get some sort of incentive wether its really a discount or a marked down discount they tend not to come back and go to the BB stores, or keep going around till they find someone to give them a discount.

    i don't like discounts either. but they seem to be what even the big stores in malls are doing, who never have before this year. ie macy's.. people need to feel like they are getting some sort of deal.
  37. Pat Kotnour

    Pat Kotnour SGF, Supreme Grumble Framer

    Not everyone does business the same, but for the most part the principles to keeping a business operating in the black and thriving against all odds are the same whether it be wholesale or retail. I learned that over 30 years ago when I started my first business.

    I am a pretty savvy businesswoman who understands what it takes to compete with the bigger companies who are always trying to corner the market. It takes constant change in how you do business. I am the first one to admit that I don't know everything about the framing industry and I'm sure that I never will, but there are some fundamentals that have worked for me all along and I will keep using them as long as they keep working.

    It is a well know fact that the BB's mark up 60% to mark down 50 all the time. That is something that has been going on from the beginning. But to think that you can't compete is a totally wrong way of thinking. The truth is that you are probably lower priced for better framing, or at least equal to them in price already.....and without any deceptive discount advertising.

    I have never been afraid to tell a customer that I would match or even be less than the BB's for better framing, because the chances are that I can be....and without a discount. The BB's are not better, nor cheaper than the independent shops. It's just that because of the advertising they do, the publics perception of them is that they are, and unless you show them different customers that could be yours will continue to believe it.

    It has been my observation that marketing can't be cut and dried. You have to know the competition and act accordingly. Every area is different and to insist that no one should ever discount is pretty unrealistic. There are times when you must step out of the box, or get buried in it.
  38. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    So true. Too much time and effort goes into getting a discount from a supplier. Much better to focus on better sales techniques. One less lost sale per week, or increasing your average sale by just $10, can make up for a lot of sins by the "Purchasing Dept."

    Cutting cost is important, but I'd work on reducing fixed expenses before beating up my supplier. Then, I'd beat up my supplier. :)
  39. David N Waldmann

    David N Waldmann SGF, Supreme Grumble Framer

    Original price: $1.00
    Mark up 60% = $1.60
    50% off = $0.80

    So are you saying they really give a 20% discount, or????
  40. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    Pat's a marketer, not a mathematician, :) but her point was that they use a bogus starting price to arrive at their discounted price.
  41. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    Paul C-

    My purpose for participating on these boards is for the exchange of information and to try to make our industry better. I am sorry if you feel that I am only here to promote my class as that is not the case. This thread started out as an attempt to call out a factual error in an article that should not have gone unchallanged. Where is the promotion in that?

    Nor do I feel that I have ever attacked you personally or questioned how you run your school or have ever told you how to do so. I do not have a web link at the bottom of my name, or call attention to my business at the end of every post. I simply asked if there was a "business" aspect to your curriculum and all you needed to do it answer as you did without telling me to run my own business. Certainly a potential student for your school has a right to know in advance what would be taught, and if I were to refer someone to you, I would want to know as well. I never said you should teach business or your curriculum was lacking if you don't.

    I am confident that there are many who read the Grumble who could benefit from the information I have provided and while it may be "obvious" to a more experienced person like yourself, it may not be to others (especially to those who have not posted). To call me a master of the obvious is unnecessary and insulting.

    I am a former student of Dr. Lawrence Steinmetz, who was a professor of management at the Graduate School of Business at the University of Colorado. He consults with hundreds of small businesses across the United States and I am sure he has many examples of just such a scenario. I have written to him in hope that he would help me to provide some more meaningful statistics and I will post when he responds.

    I am disappointed that you would find me to be arrogant as that is certainly not my intent. I am not quite sure what I could do to have you find otherwise. My desire is to share information that I thought would be beneficial. And, I am CONFIDENT it is fact and experience based, not just opinion. Whatsmore, I try to do so without personal attacks. I thought we were on the same team.
  42. Paul Cascio

    Paul Cascio SGF, Supreme Grumble Framer

    We are on the same team. Peace.
  43. JWB9999999

    JWB9999999 SGF, Supreme Grumble Framer


    But I've always looked at it from the point of view that it's easier to increase profits by reducing expenses by $1 than by increasing sales by $1 (which could be done via raising prices by $1).

    Different way of looking at the same thing. Dollars versus percentages. But how you look at it completely changes the emphasis.
  44. wvframer

    wvframer MGF, Master Grumble Framer

    My response to the Decor article that is the subject of this thread was very similar to Rob's. I have followed the thread throughout the day, sometimes to the exclusion of other things I should have been doing! This has been one of the most instructive things I have read in a long time. I have some strong opinions, but they have all been covered already. I hope that this kind of discussion will continue here or elsewhere. One of the truly unique features of the picture framing business is that our creative side is usually what draws us to it and keeps us going. It is a rare person who has both creative ability and business acuity in equal measures. When times are good, it is easy to slip into a mindset that isn't keeping a close eye on the indicators, but when things get tough, watching them becomes a matter of survival. For my business that time is now. Getting basically free advice on what to watch and how to watch it is invaluable to me.
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