A voice from the past reached out and spoke to Chris Yenrick not long ago. Yenrick was going through an old filing cabinet in the Statesville, N.C., branch of Smith Phillips Building Supply when he came across a column clipped from the June 17, 1950, edition of the American Lumberman & Building Products Merchandiser. The column was entitled "Your Profit Is in Your Pricing," and consisted of excerpts from a speech by the magazine's editor, Art Hood. In it, Hood makes a far stronger and more eloquent argument for profitable pricing than I've ever managed. Here's a sampling:
Reports from all directions indicate that dealers today are doing the largest volume in their history with the smallest percentage of markup in years. Net realized margins before taxes are down to as little as 1% to 3% of sales. This is one of the reasons that lumber retailers are failing 18 times as fast as they did in 1946.
If the cost of doing business is 21% of sales (the national average), it is necessary to get an average markup of 45% to make a 10% net profit before taxes on sales volumes. Ten percent seems to be a fair net profit goal. While some dealers argue that they can't get a 45% markup because of competitive conditions, others get a satisfactory profit because they have the courage to establish the right markup policy and stick to it.
A retailer faced with the necessity of making a net profit cannot worry too much about whether prices are too high. People are paying more than ever before for automobilies, clothing, beef steak, transportation and common stocks. Why shouldn't they expect to pay proportionately for lumber and building products? We don't like to pay $1.49 per pound for lamp chops and liver that we bought before the war at 49 cents per pound any more than we like to pay 6 cents per pound for lumber that we once bought at 2 cents per pound.
You can't have prosperity without profit! Bankupt dealers have no value for the community, for the producers who depend on them as outlets nor for themselves. Neither do they pay income taxes!
Why not fight for justifiable profit? Where your margins are producing only 3% net before taxes, if you add 1% to your average selling price you will increase your net profits by one-third! If you can add 6% you are getting up toward the profit goal that is adequate to sustain prosperity in your business, in this industry, and in our country.
Is there any reader of the American Lumberman who can't get an average of 1% to 6% more than he is getting in the way of selling prices with the courage of his convictions that a profitable price is the right price–and the intestinal fortitude to stick to his guns?
The column also includes some great examples to determine markups. E-mail me for a copy ... and learn from a past master.
Craig Webb, editor