Dealers with a hunger to improve look each year to Jim Moody to put their performance in perspective. Moody runs the Construction Suppliers Association, a group serving dealers from Louisiana to Georgia, but in each of the past several years he’s expanded his horizons by collecting data from dealers nationwide to create the Building Material Operations Comparison (BMOC) survey. Most of the roughly 150 dealers from 20 states who provided numbers also take part in roundtables, which I’ve found typically are populated by the upper echelon of independent dealers. That’s why this year’s results are particularly noteworthy.
It wasn’t that the BMOC participants reported average gross margins of 25.94%. It was that after you deducted all of the operations costs, operating income at these dealers averaged just 1.01% of net sales. Meanwhile, what the BMOC survey classified as “other income”—mainly money from service charges, delivery and fuel surcharges, invoice adders, and interest on payments due—added up to about 1.19%.
Of course, that “other income” percentage looks better in part because the costs of imposing and collecting that money are baked into the operating income line; for example, income from the fuel surcharge doesn’t include the cost of that fuel. Still, Moody believes the numbers “really do show that the ‘other’ income is a significant part of the puzzle.”
We haven’t reached the point where LBM operations are like car dealers, which make more on financing and spare parts than they do on selling new cars. And our charges aren’t generating the outrage that airlines provoked as they ramped up charges for bags, food, headsets, and ticket changes. But it is getting ever more apparent that we’re leaving an era of all-inclusive pricing for one in which à la carte service is the mode. And as this trend takes hold, we’ll need to change.
It takes clever financial management to run a business that prospers by starting with competitively low materials prices and then counting on customers’ foibles to generate vital extra income. No doubt phrases like the “time value of money” will enter your vocabulary. What you do on the margins of your business ultimately could matter as much as what you do at the core.