“How One Critical Small Business Marketing Idea Increased Cary’s Net Profit 600%”

For several years, Maverick designed small business marketing ideas and strategy, marketing campaigns, and helped with customer service technique for a specialty retailer in the Plains States.

We knew Cary’s marketing idea & strategy were effective because we constructed the same kind of plan for several other comparable businesses. Each time sales took a jump.

The market in which we advertise is one of those fabled “recession-proof” towns. It enjoys an abundance of high-paid government bureaucrats and medical professionals so money flows in a steady stream.

Cary’s problem –
“roller coaster”
sales

Cary’s marketing idea is to focus on that same group. His prospective customers translate into abundant and stable potential.

But in his case, sales go up and then fall back at the slightest provocation. Minor sales gains come hard. Worse, the business seldom earns a decent profit through several consecutive years.

I’m doubting this marketing idea. I’m fed up and decide to really push with advertising to see if we can force additional sales and “outrun” expenses. I pull every rabbit out of my advertising hat.

At the end of the year, sales are up and we register a profit! But, $12,000 net on $500,000 sales volume is scant return for all the work. What to do?

We smoke out
the problem

On a midsummer afternoon, I steal a little time, go to the store, find a corner, spread some papers to look busy, and just observe. I have to confess I also sneaked in a favorite crossword puzzle.

A few years before, Cary had found an unknown but well-made brand of luggage. It was great because he could also earn at least five points higher margin.

We set about establishing the brand as an exclusive. When you can find such a gem, that’s always a good small business marketing idea. It makes you famous.

We merchandise and display it front and center in the store. Women like this luggage. It looks stylish and has special features not yet available in competitive brands. Success. Sales boom.

This day, a woman enters and asks for our locally famous brand. The clerk breaks my heart. “I’m sorry. We’re out but I can order it for you.” The lady can’t wait and leaves. A second woman asks and slumps out disappointed. At the third request in two hours, my alarm bells are shrieking.

They’ve missed probable sales of no less than $1,200 – and this store averages only $2,000 a day total sales. Yet, when you look around, a mountain of other unwanted merchandise gathers dust.

This is the period when I learn effective advertising and display do drive sales. But nothing can supplant the right merchandise, at the right time. You still need a product. Drat! Marketing “smoke and mirrors” alone won’t do it.

After a little calculation, I discover the store turns its merchandise investment (stock) only once per year. Optimum yearly stock turnover should be two & one-half to three for this type of store. In other words, they should be turning their dollar investment 2 ½ to 3 times per year. Obviously, they’re not.

The store’s people “count inventory” religiously (mostly so they can bemoan the fact “somebody stole something”), but no one has any inkling how to use that count to analyze merchandise rate-of-flow.

Systems for tracking the rate of sales per merchandise category are non-existent; and I am the only one of our “brain trust” (using the term loosely) who even knows what an “open-to-buy” plan is.

“Who, me? I don’t
need that”

Need I say Cary is an old-style retailer? He balks at the idea of inventory planning to help with his problem. In fact, he doesn’t even recognize the problem!

I think it amazing he cannot see how badly his lack of system hurts profits. Only later do I humbly realize I needed time to grasp the idea, too – so why should he see it any sooner?

I use the term “inventory planning,” which Cary interprets as “counting inventory”. He already does that.

When I use terms like “stock plans” and “open to buy” plans, his ears don’t hear. He’s certain he can walk through the store and identify what stock they need to replenish or discontinue. After all, he’s been at it for more than forty years.

Only later do I also realize when a store is small, most merchants really can “eyeball” their stock and spot inventory needs. But, their very ability and the pride that goes with it, make for a stumbling block to better operation when sales volume grows large.

Once stock reaches a certain level (much less than most of us managers want to admit), it’s virtually impossible to keep in our brains a sense of the rate of sales in each merchandise category.

Engineering the
solution

Back to the point of this story. Cary finally convinces himself to retain a professional inventory planner, “just for a year to see what he can do.” I get in touch with a pro that comes highly recommended. He goes to work.

At the end of the next twelve months, inventory shrinks a little. But, more importantly, we identify and sell off slow-moving goods. The resulting cash-in-hand allows us to buy in more wanted items like our previously out-of-stock luggage, which has cost so dearly in lost sales. In other words, we balance the inventory.

Store sales still hover at about $500,000 this year because we mark down substantial amounts of old merchandise to clear. Nevertheless, net profit rises to more than $60,000!

Net profit on the same amount of sales rises from 2% to 12% – a 600% increase! The next year, sales volume resumes rising while net profit rises to 16%.

Since that first experience years ago, I always check a store’s inventory planning system before we move on to advertising. Unbalanced inventory drives up the advertising bill, lowers advertising results, and can “gut” your profit.

Managers report back many additional sales (and an easier time getting them) when they start using any Maverick marketing idea in addition to maintaining balanced inventories. Much more profit, too. This storeowner embraces his new knowledge and makes it pay handsome dividends.

I feel compelled to point out, however, inventory planning actually is not new knowledge. It’s been around and thoroughly proven for years. The big guys like WalMart use it to beat everybody’s brains out. But, it’s new to Cary.

The solution has
several parts

Another important realization came to me. No one factor is responsible for a business’s ultimate success.

  • You need a good product, priced right, of course.

  • You also need effective merchandise display and inventory planning.

  • You need well-trained salespeople.

  • You need to get your pricing strategy right.

  • Selling advertising that communicates the unique story of your business adds to it.

  • Thoughtful courage and wisdom on the part of management completes the mix.

I gave it a name: your Value Package. This package of values includes all the major selling points about your business a prospect needs to know so she can make a positive decision.

Why consider the whole value package? Usually salespeople get so focused on selling products, they forget to tell prospects the reasons why they should become a customer. So they miss hundreds of thousands of dollars in residual business that’s there for the taking.


© 2001 Gary (Rod) Rademacher

One part of your Value Package cannot replace another. You use them together and they all work together to grow your business. Tall order – but successful managers do it every day.

You can get a better sense of what I’m saying with another article on The Maverick Marketing Method when you click here to learn about Eight Proven Ideas In Marketing.

How to check your
own situation

Do you need inventory planning? A friend of many years, Jack Robinette at Robinette Retail Service in Dallas, has his clients ask these questions of themselves:

  1. Do you have too little money in the bank?

  2. Is too much money tied up in merchandise lying on your store’s shelves?

  3. Is your gross margin (the percent remaining after you pay for the merchandise) too low?

  4. Does merchandise lay on the shelves a little longer than it once did?

  5. Is your advertising bill too high?

  6. Is retailing less fun than it once was?

If you answer ‘yes’ to five out of six of these questions, it’s time to look closely at your own inventory planning.

How inventory planning can
create extra profits you
may have given up on

Once they start inventory planning, managers repeatedly relate tales of how each “discovered” thousands of dollars in “dead” merchandise.

They sold it to get cash back in hand. They increased sales by learning how to keep more wanted merchandise on hand. Chronic cash flow problems disappeared as if by magic.

Jack’s clients commonly add an additional $30,000 to $35,000 per year in net profit on $300,000 worth of yearly sales.

If you came up with some negative answers to the questions above, click here to contact Jack. He’s generous with his time and will be happy to talk with you free of charge about problems that may be occurring in your business.

Inventory Management and Production Planning and Scheduling, 3rd EditionIf you’d like reading material on inventory planning, there’s an excellent and complete reference in Inventory Management & Production Planning and Scheduling, 3rd Edition by Silver, Pyke & Peterson. This one is so complete, it may be more than you ever wanted to know. Click on this title for more information.

To sum up, don’t be afraid to look at new ideas in management, product display (even for a service business), pricing, advertising, and sales and service. Each represents a critical component in any small business marketing idea. They can save you – and make you – lots of money.

They save you TIME – the one commodity we’re all short on. They give you peace of mind with a better way to do things.

As we get older, we sometimes begin to believe we’ve seen everything. There’s no use trying one more.

After 30 years in marketing, I’m just about certain I’ve seen every small business marketing idea and customer service technique there is. What’s more, I’ve tested them. And, in most cases when I give advice, I’m right. (How’s that for ego?) 🙂

But, every once in a while . . . It’s those “once in a whiles” that bring me back to real life and continue to make life utterly fascinating.

The moral of this story? Keep your eyes and your mind open to any new small business marketing idea and customer service technique. Just one may supply the breakthrough that makes your year.

Do you belong to a trade association or have a company with several locations?

You and your managers can learn a whole proven system that eliminates guesswork and increases your success odds mightily. Click here for the Maverick Executive Advertising Seminar. You’ll learn all about it and get a free Speaker’s Kit to show to your group.

If you’d like more tips and ideas, take a second and sign up at the top of this page for our monthly Maverick Strategy Newsletter. The Maverick newsletter comes to you at no charge, we never give your name to anyone else, and you can cancel instantly.

I wish you well.

Regards,

Rod Rademacher
Maverick Strategy
4148 S.W. Emland Drive, Suite 7
Topeka, Kansas USA 66606
Phone: 785-783-7756 or
Email us here

P.S. If you’d like to explore more helpful articles for maverick managers, click here for the Table of Contents.

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