Early in my career, I was in the audience of a National Kitchen & Bath Association workshop where the speaker talked about achieving over 40% gross profit margins on kitchen and bath projects. The speaker suggested that high-margin success should be an everyday occurrence, not a once-in-a-lifetime achievement.
I sat in disbelief, wondering what planet this guy came from. I heard crazy babbling from the stage; 40%+ margins were foreign words to my tender ears. Being stuck at 28-32% margins, anything over 38% seemed unattainable. I left that workshop frustrated, confused and discouraged, thinking I was destined for mediocrity.
That session haunted me. Are consistently higher margins doable? Can you achieve higher margins on projects in any market area, or is it only available to a select few markets? Tired of the meager ROI I saw from my business, I decided to take the plunge and test whether selling higher margin projects consistently was a reality or a pipe dream.
ACHIEVING HIGH MARGINS
The journey opened my eyes, and I discovered that high margins are achievable. I want to share critical lessons I learned along the way, which, when appropriately applied, can accelerate progress and take you to the next level quickly.
Paradigm Shift Required: An essential change in how you think needs to happen; a shift from “that’s impossible” thinking to “perhaps it is possible.” Often, our limited belief system holds us back. This belief system restricts us from the possible and provides gridlock. It keeps us stuck in our current state. Freedom to achieve higher margins is achieved when perceptions and previously held beliefs are significantly altered.
Create a Correct Price Formula: How much should you charge for the products and services you offer? Most dealers rely on manufacturer reps or their competition to provide that information. Arriving at the correct price is knowing the gross dollars needed to fund market rate salaries, including the owner(s), all overhead expenses and the desired net profit for the year. This formula will provide the gross profit margin to price products and services appropriately for your business.
Establish a Repeatable Sales Process: Many kitchen and bath dealers need a defined, proven written sales process that everyone on the team follows. Too often, sales are left to the designer to figure out, which leads to inefficiencies, lost opportunities and diluted margins.
A written sales process includes identifying the ideal customer and all supporting customers. Included is the framework for the first appointment, when to ask for a retainer and when to disqualify a prospect.
The benefits of embracing this methodology are numerous. Designers earn more income per sale, greater sales volume, and higher margins – more productivity in less time. If everyone on a design team follows the same proven sales process, it levels the playing field for newer teammates with less industry experience to perform well and achieve their respective sales goals.
Effective Delivery System: Great designs may get you a high price in good economic times. But what about earning a high price all the time? Raising your prices alone would get the job done. Marketing experts agree that it is virtually impossible to differentiate a product or service. The only way it can be done is through the delivery of that product or service that creates value for the higher margins you are trying to achieve.
Consumers are willing to pay more for a meaningful experience that solves their problem within their investment range in a timely manner. This is an excellent opportunity for savvy dealers to differentiate themselves in their marketplace. You also need to create a delivery system that stands apart from the competition.
Align Compensation: The fastest way to higher margins is by creating a compensation structure that rewards designers for selling at higher margins. Creating a commission structure that assigns different commission percentages to gross profit margins on a sliding scale incentivizes designers to sell at higher margins consistently.
Sales designers instinctively want to earn more for their efforts, and rewarding them to sell at a higher margin can foster a relationship where both parties win; the organization benefits from the desired margins, and the sales designers earn more income.
Adopt a Shock Proof Pricing Strategy: It’s no secret that the internet enables consumers to shop, price and compare products for their home project. This is all the more reason for designers to embrace a strategy that combats internet shopping while protecting and maintaining high margins.
Some items are more easily shopped, such as appliances and plumbing fixtures. So, instead of losing money on those types of products or losing sales, consider increasing your margins on other products that are not easily shopped. i.e., cabinetry and lighting or tile. While the margins on the competitively priced products are less, increasing the price of other products protects the overall project margins.
Add More Products into Each Project: Another way of protecting high margins is adding more product – higher margin products into each sale. Products like closets, water filtration, stools, lighting and window coverings are some add-on products that carry high-gross profit dollars.
In reality, the homeowner will be purchasing these products somewhere in your market or online, so why not offer them under one roof from you – especially since you have already earned their trust and confidence?
The selling of high-margin projects is an art that takes effort and intentionality. You can navigate the high-value opportunities, but it requires practice and discipline.
Football teams are a perfect model for our industry to follow. Teams practice basic blocking and tackling during the week, all in preparation for playing a game on the weekend. They practice every week, working on improving their performance, so when it’s game time, they are functioning at a high level.
As kitchen and bath dealers, shouldn’t we be doing the same thing? Preparation for the sales opportunity and initiating proven strategies leads to high margins. The successful sale of high-margin projects benefits your business and establishes a foundation for sustained growth and profitability. ▪
Dan Luck owns Bella Domicile in Madison, WI. He has been an SEN member since 2002 and has led the SEN Leadership Team since 2018, conducting scores of the group’s educational programs. Please visit http://sendesigngroup/education for more information.
Dan welcomes questions and comments at [email protected].