The Tradeoff Between Volume and Profit
During the course of these conversations, one thing always became extremely apparent — today’s floor covering industry is totally geared for continuously growing sales volume.
During the past 10 years or so, it seems many in the industry have lost sight of the reason to be in business. That reason is to earn a profit. When we gather at conventions, it seems that the talk always gets around to discussions of sales volume. Of course, volume is of some importance, but it should not come at the sacrifice of profits.
A business thrives on profit. You can’t grow a business without it. Nor can you pay your employees or your suppliers without it. So why has volume become so important?
Volume gives you something to brag about to your peers. Profit is for growth and prosperity. Generally, businesspeople do not discuss their profit with others. They keep it a closely guarded secret.
All too often, profit levels are kept secret because they are inadequate for the sales volume. Most any company, regardless of size, could increase its annual sales volume 10% to 20% simply by lowering prices (cutting profits). So, it’s easy to achieve a large sales volume.
But to have a large net profit on that volume takes astute management, careful control of expenses, maximum employee production, and very tight inventory control. The next time I hear of a company that admits to cutting its volume in an attempt to increase profits, I will recognize that company as one that has realized the true gauge of its management is based on net profitability — not sales volume.
I’ll bet you won’t hear too much bragging at the conventions about cutting volume to increase profit. Remember, profit pays the way.