When Kimal Lumber CEO Al Bavry worked for Wickes, he was told he could never get gross margins into the low- to mid-30s. But he did it regularly. How? By asking customers what services and products they wanted, and then creating a profit-and-loss sheet to determine how much he'd have to charge in order to provide those services.
"I consistently held margins that ran six to eight or nine points ahead of the company average," the Nokomis, Fla.-based executive recalled in a commentary published July 10 in the Florida Building Material Association e-newsletter. "And we made money year in year out, in spite of our model not fitting the norm, nor being anywhere near the company average."
Today, the same requirement holds true, Bavry says: You have to make sure that you back it all up with absolutely superior service, products, personnel. And you need to remember as well that this business runs in cycles; it's vital to make money in the good times so you'll have seed corn when the next downturn arrives. Bavry then adds:
I still believe in, and follow, the 70% rule ... that approximately seventy percent of your customer base will pay you more, if you've built that relationship correctly. ... Looking into the future, I believe the new model, if you're a full-Service building material operation, shows at least a 40% maintained margin. I truly believe it's doable. Those that think it's not, will eventually, sadly, be relegated to... You get the picture. Good Selling!
Visit FBMA's site for more of Bavry's wisdom.