Percentage margins don't matter, according to Amazon.com founder Jeff Bezos. What matters always is dollar margins. Those words of wisdom ring just as true in the vending business.
Profit margins -- the money we're supposed to be making after paying our expenses -- have been notoriously slim in the automated retail industry for decades. Competition, commissions, raw material costs (sugar, corn, chocolate) and a plethora of other burdens have given our industry the reputation of being a "penny business." That is, a business earning only a few pennies per dollar of total gross sales.
To make matters worse, it's not always easy convincing every employee that profits are, in fact, quite tight. Try telling it to the processing room clerk staring down piles and piles of uncounted collection bags, or the route driver who pulls fat stacks of bills out of bill acceptors. Sometimes it's hard to see the small amount of profit in a business with large product and revenue flows.
That's why it's important to discuss and manage margins on a daily basis. Managing margins is one of the easiest ways to boost profitability at any sized organization. In this article, we will examine four simple ways to increase margins for a healthier, happier bottom line.
Make margins matter by talking about them
When I'm working onsite at an operator's business and I see a bottle of pop rolling around the warehouse or delivery truck floor, I like to cry out, "Somebody catch that dollar!"
That's about what a bottle of soda costs these days. Many specialty beverages have wholesale prices far higher than $1, so it's very important for every employee to understand the value of the products they're handling. We all get desensitized to one single piece of product when we see cases and pallets of items flowing through our system on a daily basis.
A case of honey buns came in with 35 pieces instead of 36? Who cares? Four or five bags of chips were sliced open while opening up the box? Oh, well. These are common reactions of employees who aren't constantly reminded of the money they're handling during the warehousing and delivery process.
Talking about the cost of goods with every employee and raising awareness of ever increasing prices can really help control spoilage, damage and shrinkage.
Incentivize good stewardship of products by offering gift cards to employees who return products gently or meticulously record spoilage. If only 50 pieces of product are "saved" per day, that's over $500 dollars in wholesale costs saved each month.
Senior management should measure margins on a daily or, at minimum, a weekly basis
Large amounts of cash and product can often mask the fact that there really is a limit to the amount of revenue being generated on a daily basis. Whether your business brings in $5,000 or $50,000 a day, senior management should know:
1. Exactly how much revenue is generated each day.
2. How many units of product are being delivered each day.
3. How much revenue is being generated per item "sold." (Sold can either be pieces prekitted by the warehouse or pieces added to equipment, depending on your vending management system.)
As Benjamin Franklin once remarked "For every minute spent in organizing, an hour is earned." Knowing daily revenue and product movement amounts can help managers manage and help shape business strategy.
Do we need to be raising prices? Are more cashless units going to increase business? How many spoiled items are we getting back each day, compared with the number of units we're shipping out? Know your numbers, people! Please, please, please don't be afraid to use your very expensive data-collection systems as moneymaking tools. Why else are we collecting all these data in the first place? When a business knows its numbers, it knows itself. When a business knows itself it can have a purpose, and purpose-driven companies tend to succeed.
Make better margins by raising prices and/or removing them
I'll never forget the general manager who told me about his quota for raising prices. His goal was to raise prices at 20% of his accounts each quarter. He wanted prices higher in 80% of his business by the end of each year. The general manager's philosophy was: "If the price of something I sell goes up at Walmart, then I need to get another nickel (or quarter) for it in my machines." I agree with this philosophy, but I readily admit that it's not for every operator. Businesses have all kinds of justifications for not raising prices. If regular price increases seem harsh, what about remixing the planogram with differently priced items?
Cashless blasts open pricing opportunities for both micromarkets and traditional glassfront vending machines. "Smart" changers allow for a much wider range of bill denomination acceptance. These tools can be used to either usher in price increases or just allow for larger package sizes and specialty items. Shifting consumer requirements for prepackaged refreshment are giving operators a wonderful opportunity to reset price expectations.
Empower someone to take ownership of shrinkage
Margins materialize when someone takes time to track the movement of products and receipts. Yes, accounting for thousands (or tens of thousands) of items can be an arduous daily exercise. However, just like with physical exercise, practice produces results. If drivers are counting on the street and warehouse people are counting in the warehouse, someone in the office needs to do the often difficult work of making sure real-world and computer-world information meshes.
Assign somebody and hold them accountable. Each and every time I've watched an operator track product and receipt movements on a daily basis, operational improvements have occurred. Just like athletes and performers get better by watching video of themselves, companies become more profitable when someone watches the data.
Margins ultimately matter to everyone at an organization, no matter the size. After all, paychecks only get distributed when there's income available in the checking account. But believe it or not, operating profitably can be fun! Focusing everyone's attention on margins can bring energy and purpose to a company. It can allow an individual or a department to showcase their talents. Profitability usually means happier ownership, which usually means happier employees, and happier employees make happier customers. It's amazing how many people turn out winners when maximizing margins is made into a mission.
» Ben White is president of Vending Insights Inc. (Sykesville, MD), which provides data analysis for the automated retailing industry. He was director of operations for 18 years at Monumental Markets (Beltsville, MD), running the vending firm's new micromarket division during his last year there in 2012. He began his vending career in the early 1990s as a cold drink rep at Coca-Cola Enterprises. White also is an adjunct professor and trainer at Carroll Community College (Westminster, MD).