1. Has your competition put pressure
on your prices & profits?
Are declining sales leaving you
wondering how to make your
business more valuable &
saleable?
2. Do you want your
business to generate
more money?
4. A hardware store has on file…
Building Timber & Hardware Specialists in Data Analysis and Business Consultancy
5. And identify the value of lost profit…
The stock is NOT working hard to generate profit ...
6. We found 2,000 products worth over $175,000 that don’t
add anything to the business…
7. These products had been in stock for an
average of 27 months without a sale ….
8. We determine the ‘size’ of the problem…
“Dead” stock has cost this business a total of …
9. Here’s how the stock drains your bank account
The Blue bars show the original profit of each product when bought by the store
The Red bars show the current profit in those same products today
*Note: each bar is a product & just like looking at the products on your shelf – you can’t really see
where the profit starts to go negative, until it’s very significant.
10. When originally purchased by this
hardware store, the intended profit of
these 2,000 products was over …
11. After keeping these products in stock for so
long, the CURRENT profit on these 2,000 products
is…
The new average cost value of each item is now Negative $19.98 !
12. That’s a profit turnaround of negative $142,000
Instead of trying to generate $2m in extra sales
Stopping the lost profit is far easier & more effective
13. At the same business we also looked at stock on hand
in excess of 6 months sales...
14. But, we didn’t stop there… we dug deeper to find…
Within the TOP 10,000 best selling products,
there were
2,395 Out of Stocks
(Lost sales, further lost profit)
15. These “out of stocks” had historical annual sales of…
That’s an incredible amount of lost opportunity…
16. This business didn’t think these products would be
“out of stock” very long…
…Were they right???
17. The average days out of stock was…..
A potential lost revenue of …
18. Of course, any timber, hardware or building
supplier will need to add the following losses or
costs to the profit leaking out of the business…
• Potential Lost Opportunity to ‘Add-On’ Sell
• Potential Loss of Repeat Customers
• Potential Damage to the Reputation of the Business
• Disappointed Customers Complain to Others & Spread the Word
• The Added Cost of Re-Delivering with Stock Shortages
• Added Costs of Labour in;
• Extra Purchasing,
• Extra Receipting,
• Extra Re-Stocking,
• Extra Order Pulling,
• Extra Loading & so on
• Driving Customers to the Opposition – Where They May STAY
• …The list can be as long as you want…
19. This business could generate $1,500,000 extra throughput by;
1. Getting just 1 more person per day through the doors
2. Converting 1% more “browsers” to buy something
3. Enticing the customers to come back just once more every 3 months
4. Increasing the average value of each sale by just $2
$1,500,000 annually! Without significant added costs.
These are simple steps to profit if you know how to take them …
HOWEVER…
This has exactly the same effect, in the and can unwind your
revenue by the same amount, if you reverse those things shown above… & poor
purchasing and inventory control does precisely that!
20. For this client the Phire Power ™ also found:
Each $1.00 invested in stock , had a margin return of just $1.14 – compared to a desired
figure of $2.00 or more.
Improving stock turns by 1 with an improved GP (½ percent) provides and extra 43¢ on
each dollar, resulting in a $627,000 higher throughput – or profit!
Stock turns were 3.1 - the comparable benchmark for this store
size and trade mix is over 6.0
21. BTH Performance created a Targeted Return for the
Business… $156,000 in year 1
Stock Current Target Difference Improve turns by 1
Stock Turns 3.2 4.2 1.0
Stock Level 1,636,006 1,236,006 -400,000 By reducing stock
Days Stock On Hand 115 87 28 Days
Increase cash flow days
Gross Profit 0.265
0.26 0.27
COGS 0.74 0.73
Increase GP by ½%
Margin Return $0.43
DROI $1.14 $1.57
Adjusted Margin Extra for every $1 invested
$96,000
(Includes Hold Costs) 0.208 0.222
Your Capacity $627,483 Improved capacity
Benefit realistically targeted during year 1? 25%
Annual benefit $ 156,871
First Year Target return
22. We also provided an Estimated Break Even Analysis
Description of Terms used to calculate break even Your Example..
Average total revenue per sale:
This is the price you charge the customer for each sale
Average sale value of $68.39
before you deduct any of your costs
Average per sale cost:
Avg cost of each sale $50.36:
What is the cost, on average, of the goods you sell (GP of 26.4%)
The sale price less the Gross Profit
An average month's running costs:
Including, lighting, insurance, wages, rent, etc Monthly expenses of $113840
These are the basic costs you have to pay in an
average month to be able to sell your products
The Formula is:
Average month's running costs
= break-even point (number of SALES required)
(Average sale price - cost of sale)
113,840 = you need to do 6313 transactions
Therefore, using the numbers above:
18.03 before you make a profit
23. Break even point = 6,313 transactions.
Breakeven Sales & Transactions
$863,551 Total Revenue
Total Cost
$663,551
$463,551
BEP
6,313 trans
$431,214
$263,551
Profit (Loss)
$63,551
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
$(136,449)
$(336,449)
Transactions
24. With Cash flow of just 2¢, they still have to pay their
operating costs, another 19¢...
~ Which Maxed out the overdraft ~
GP less
working capital
AR Plus Less equals equals Less your
Less equals (Debtors) Inventory AP Working Marginal Cash Operating = Free
Revenue COGS Gross Profit costs costs (Creditors) Capital Flow Costs Cash Flow
$1.00
$0.80
$0.60
$0.40
$0.20
$1 $0.74 $0.26 $0.08 $0.23 $0.07 $0.24 $0.02 $0.19
$0.00
($0.17)
-$0.20
-$0.40
25. BTH Analysts also found:
More than $900,000 in UNNECESSARY outstanding
purchases… across 530 orders
Over 85 orders in the system with NIL value (staff raising verbal orders)
Over 50 orders are from 1 supplier and are worth nearly
$200,000 and date back to January 2011
102 purchase orders in the system are linked to customer special
orders and valued at $163,398 and should have already been
delivered to the customer!
Every year we added more to the pie with more stock ingredients at higher prices until we got to $241,000 – todays valueStarting in 2005 with $1702006 – 2,5102007 - 3,8222008 – 7,2332009 – 14,8262010 – 28,7082011 – 101,041Plus a further 80,886 with an unknown date but probably well past its expiry date
In all there are 1,977 out of stocks – of product that have a sales history this year!If we suppose that there are some ZZ’s or specials included in this number, (and I’d question why they are marked as stocked lines)Then we could look at the out of stocks that have sales this year – but ALSO have a min/max applied to them, sure these would be stock lines.So what does it drop down to then?1,321
Let’s go back to see how much money we wasted in dead stock – And see how much money we’ve now lost in missed sales….Again, Don’t worry about the formula, I’ve done the work for youThese out of stock have annual sales of $562,479 – which $46,873 per month
How long have they been out stock though, surely not long…Well, the average time out of stock is 2.1 months!Again, I’ll do the maths – that’s $98,187 of lost revenueEven if you want to ignore negatives for some reason – then the figure is still a staggering $63,254This is some serious bad news
So $241,896 in dead stock$67,420 in wasted holding costs$98,187 in missed salesPlus other incalculable savings and costsBrings us to a grand backwards total of $407,503 in dead capital and lost profit in one branchHow many branches of H&G are there?
These simple steps will make & / or save this company … well, you do the math, based on what you’ve just seen.