January 5/12, 2015; Volume 28/Number 14
By David Romano
In a recent unsubstantiated survey of overworked flooring retailers, creating an annual strategic plan ranked lower on the fun scale than having four impacted wisdom teeth removed without anesthesia. However, keeping those teeth and the damage they could cause to the rest of your pearly whites is much more painful than the procedure. The same can be said for dangers related to not completing an annual strategic plan.
Creating a strategic plan means mapping out your strategy for the coming year. These plans define what tasks you are to accomplish, who is going to complete them, how each task needs to be carried out, and the timing of completion. These planning sessions are most effective when done with key players of the organization; “me, myself, and I” are not multiple key players. It is also beneficial if these sessions are done offsite and conducted by an independent third party who understands the methodology of true planning. Don’t worry—there are a ton of consultants out there who can help you, and it will cost a lot less than doing nothing and losing out on the gain in profits and revenues.
Some of my past clients believed that creating a strategic plan meant setting goals to increase revenues by 10%, raise margins two points and gain $50,000 in gross earnings. Those numbers are just the starting points; what is the real meat to this exercise is to take those three figures and break them down into smaller initiatives. For example, increasing margins by two points could include implementing a new pricing strategy, signing up and getting trained on the use of RFMS Measure to reduce errors in estimating, and building a selling system to curb, if not eliminate entirely, the practice of negotiating on retail jobs.
A goal without a plan is just a wish.
In a substantiated survey conducted by Benchmarkinc, several hundred flooring owners who created an annual strategic plan in 2013 saw a substantial impact on the performance of their respective flooring companies. They realized a number of increases, including—but not limited to—the following:
- Turn rates (the number of times the inventory value in dollars turn over per year) were 31.6% better than the average, and 40% better than those who did not create a plan.
- Gross margin return on investment (the $ return on every dollar invested in inventory) was 35% better than the average and 49% better than those who did not create a plan.;
- Employee productivity (the money handled by each full-time equivalent, including sales) was $14,515 more per full-time equivalent than the average, and $28,819 more per full-time equivalent than those who did not create a plan.
- Gross profit (profit after all direct expenses) was nearly one point higher for the average and those who did not create a plan.
- Sales volume – total net sales (gross sales minus sales tax and discounts) was 31% greater than the average and 89% greater than those who do not create a plan.
Let’s circle back and see if this practice really affects your business. The potential real impact to a flooring store that averaged $3 million in 2014 that decides to create an annual strategic plan in 2015 cites an increase in sales of nearly $2.7 million and an increase in net income that will more than double. Spend a couple of days working on a plan with key staff members and a consultant and you will realize those increases are well worth the investment in time and money.