Know Your Margins

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January 16, 2014
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You can have a growing pool and spa business, but without adequate profit margins, your growth efforts really take you nowhere. It is important you know your margins and know them by product or service type. You want to be sure you are promoting and selling your highest margin products and services whenever you can. These provide the resources to cover your costs and reinvest in your business.

There are two primary ways to improve the profit margins in pool and spa businesses’: Reduce expenses or raise prices.
Cutting costs is not necessarily the right move when you are trying to grow your company. Eliminating waste is always good, but don’t allow it to come in the form of eliminating services, reducing staff and down grading the ability to deliver on your promise.

It is also a great idea to periodically review individual jobs for their respective gross and net margins. Doing so will help you pinpoint changes that need to be made. Utilize the job costing features of your pool and spa POS system to evaluate the cost and profits on all of your construction and renovation jobs. You will know what to adjust in future estimates in order to ensure you are making the profits on each job that you need to sustain and grow your company.

Improvements in operating expenses increase the bottom line. Examine phone bills, office supplies, computer supplies, fuel costs, insurance costs, and marketing. Remember to track your marketing efforts and get feedback from your staff on what is and is not effective. Pool and spa software should allow customer interactions to be tracked with referral information. Eliminate the marketing and ads that are not bringing in new customers or increasing sales with current customers. If you stop spending money on things that aren’t working, the savings will increase your net margin.

Look at vendor deals that are available on frequently sold items. Sometimes, taking advantage of a special purchase or buying in volume will boost gross margins instantly by lowering cost of goods. Explore different suppliers, too. Maintain great relationships with your current ones, but always have alternatives. If you can purchase better, you can maintain your current retail prices and realize higher margins.

A price increase may be necessary and instantly improves margins. If product costs increase and you maintain the same gross margin, you increase the amount of dollars generated that are deposited into your bank account. Make sure that you cost check every inventory invoice through your POS system to ensure that you are paying the correct price. In the case that you have a price increase, you must immediately change your retail price to reflect the new cost.

It is important that you know your margins on each item you sell and are making the profit that you need to make. It seems overwhelming because you sell so many items, but your POS system should have an easy at-a-glance report that you can view to ensure you are on target.

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