Pretax profit at a typical LBM dealer sank 62% on a 39% drop in sales, the National Lumber and Building Material Dealers Association (NLBMDA) reports in its just-released Cost of Doing Business report.

"Most of you have experienced the largest year-over-year drop in sales in your company's history," the study's author, Jim Enter, wrote in a commentary to appear on the NLBMDA pages in September's issue of ProSales. Enter, founder of the American Association of Roundtables, based the report on results from roughly 150 dealers who took part in an NLBMDA survey or in a dealer roundtable.

Based on his returns, the typical NLBMDA dealer had sales of $13.7 million in 2007 and a pretax profit margin of 2.3%. Gross margins fell 3 points in 2007 while operating expenses climbed 2.1 points. Gross profit per employee dropped 33%, earnings before tax return on assets declined 69%, and the growth potential index--which Enter defined as a company's ability to grow business with internally generated cash--declined 64%.

"Most dealers reacted quickly to the downturn by cutting their most obvious variable expense--payroll--by 2 full percentage points," Enter says. "However, the fixed expenses as a percent of declining sales grew by the same amount."

What next? Enter urges dealers to examine two critical ratios: sales per employee and gross profit per employee. "These ratios are more important than tracking overtime hours," Enter says. "Chart how sales per employee and gross profit per employee compare year-to-date previous year as well as [in the] same month last year."

Enter also stresses that "Losing money is not unpardonable, running out of cash is."

To obtain a copy of the report, contact NLBMDA's Paul Corsi at [email protected].