Occasionally I help other businesses by evaluating them and offering managerial mentorship. Last week I was contacted by another computer store owner who asked me for help because his business is failing. I obliged.
Over dinner I was shown a huge stack of papers clearly illustrating a decline in sales over the past three years. The owner had been concentrating on large jobs and had lost interest in the smaller ones. Rather than many smaller invoices with a few large peppered in, he had several large jobs with a handful of small.
Matching his purchases against his receivables I noticed a pricing trend. A $500.00 router was marked up to nearly $1,000.00 this month. Last year a similar product was only marked up 30%. He has been steadily increasing his margins to cover expenditures making him less competitive.
When I talked to his employees they told me he has been carrying a significant amount of inventory which doesn’t turn. Some components have been sitting on the shelves for years. Apparently he purchased the parts to dress up his showroom expecting them to sell. All the excess inventory did was tie up his money.
Part of the showroom was used to showcase stuffed animals which I thought were decoration. When I commented about them I was corrected and told they were for sale. One of the employees told me the owner’s wife makes dolls and trinkets and likes to sell them through the store. Another told me the owner thought it would be a good way to increase sales.
Although we aren’t direct competitors I let the cat of the bag and told him we bid against each other recently. I estimated $3,500.00 for the job versus his $10,000.00. His list of materials included many parts that were overkill. He had included a very outdated router that was a pull from another jobsite; in other words, he was selling a piece of used equipment as new.
My first bit of advice was to take on smaller jobs to fill the voids while he waited for the larger ones. Many years ago I was asked if I’d rather have twenty nickels or a single dollar. The answer I was given when I chose the dollar was to take the handful of nickels. If I lose a nickel I can still eat, but if I lost the dollar I go hungry.
Being a few dollars off from other bidders is one thing, but being 300% more than the next lowest is quite another. My suggestion was to lower margins and be honest about the items he sells. Clearly selling a used device as new is deceitful, but gouging gets a business nowhere during the bidding process.
Finally, I suggested cleaning out the sales floor and concentrating on current inventory related to his business. I’m in the computer business and the flowery displays of dolls confused me, I can’t imagine customers. Floor to ceiling computer inventory was overwhelming as well. Even though it’s a computer store, all that inventory was overwhelming and made him look like he was trying to be something different.
Running a business is more difficult than many think. Being an owner means constantly shuffling to keep up with changing times and adapting to new and different. Talking about something other than technology was nice for a change. Now that I’ve gotten that out of my system I’ll get back to zeros and ones next week.
(Jeromy Patriquin is the President of Laptop & Computer Repair, Inc. located at 509 Main St. in Gardner. You can read past articles at www.LocalComputerWiz.com.)