Good Feedback on Brokering
I have received an unusually high number of comments on my January 2010 column titled, "Brokering - Hey It's All in the Numbers!"
The column clearly noted that the amount of gross sales that you broker is not the key factor in determining your profitability, but rather how you handle and disperse that gross profit among the remaining expense categories (fixed or variable) that must be covered.
In almost all cases involving brokering, the more you broker out, the lower the gross profit, and the lower gross profit the greater the necessity to reduce expenses in either one or both of the remaining company expense categories - payroll and/or overhead.
Can this be done? Absolutely, and a letter I received which is reproduced below illustrates that you can broker out and still be quite profitable.
"Dear John, I really enjoyed your article in this month’s issue of Quick Printer. I do have a question though, what is the average commission percentage that is paid to the sales reps on the gross profit? - i.e. If there is $1000 gross profit on the job, what percentage goes to the house vs the sales rep. Sales reps are commission only at my shop. I am the owner of XYZ Printing & Graphics. We are a small 6 person printing shop in Northern California (location has been fictionalized) and our sales are about 1.85 MM. We broker about 50% of our work. Thank you for your insight."
My response to his specific question is that I would need to have more info since a $1,000 gross profit might represent a 50% gross profit or a 10% gross profit, so in terms of dollars alone I could not say.
However, what caught my eye was the $1.85 million in sales being produced by six individuals. Assuming the owner is included in that number the firm's SPE would be $308,000; Even if the total number of employees increased to seven (including the owner), the SPE would still be $264,285! In either case outstanding SPE's, even though 50% of all sales are brokered.
Now, this owner did not mention his net profitability, but based upon the calculated SPE's I am assuming that his company is quite profitable, since there tends to be a pretty clear relationship between SPE and net profits. It may not be linear but it exists nonetheless.
The column clearly noted that the amount of gross sales that you broker is not the key factor in determining your profitability, but rather how you handle and disperse that gross profit among the remaining expense categories (fixed or variable) that must be covered.
In almost all cases involving brokering, the more you broker out, the lower the gross profit, and the lower gross profit the greater the necessity to reduce expenses in either one or both of the remaining company expense categories - payroll and/or overhead.
Can this be done? Absolutely, and a letter I received which is reproduced below illustrates that you can broker out and still be quite profitable.
"Dear John, I really enjoyed your article in this month’s issue of Quick Printer. I do have a question though, what is the average commission percentage that is paid to the sales reps on the gross profit? - i.e. If there is $1000 gross profit on the job, what percentage goes to the house vs the sales rep. Sales reps are commission only at my shop. I am the owner of XYZ Printing & Graphics. We are a small 6 person printing shop in Northern California (location has been fictionalized) and our sales are about 1.85 MM. We broker about 50% of our work. Thank you for your insight."
My response to his specific question is that I would need to have more info since a $1,000 gross profit might represent a 50% gross profit or a 10% gross profit, so in terms of dollars alone I could not say.
However, what caught my eye was the $1.85 million in sales being produced by six individuals. Assuming the owner is included in that number the firm's SPE would be $308,000; Even if the total number of employees increased to seven (including the owner), the SPE would still be $264,285! In either case outstanding SPE's, even though 50% of all sales are brokered.
Now, this owner did not mention his net profitability, but based upon the calculated SPE's I am assuming that his company is quite profitable, since there tends to be a pretty clear relationship between SPE and net profits. It may not be linear but it exists nonetheless.
posted by The Quick Consultant at
10:01 AM
1 Comments:
John,
I certainly agree with your points. As a consultant in a printing franchise i advise my clients when brokering 4 or 5 color work to provide the paper to their trade vendor (assuming it's not someone like 4Over or ASAP). This allows a much better chance to achieve a 1.9 yo 2.0 mark up.
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