“Just give me the bottom line.” We’ve all heard that phrase before and we all know what is meant. Focus on the end result, not the frills and not the process. When someone says they are “keeping an eye on the bottom line,” it generally means they focus on controlling costs and promoting efficiencies.
In financial terms, the bottom line is the final total on a financial sheet, your revenue minus expenses. Of course, there is also a top line, which is the gross revenues, or overall sales. Focusing on the bottom line is critical, but it’s far from the whole story. You have to manage the top line as well, and the constant challenge business owners and managers face is finding the balance between the two.
TOP LINE VS. BOTTOM LINE
Steve Jobs said, “Someone once told me, manage the top line, which is your strategy, your talented people and your execution, and the bottom line will take care of itself.” While I’m not sure that’s entirely true, there is wisdom in understanding that, while bottom line management will certainly affect your net profits, top line investment is what will grow your business.
It’s an easy concept to understand on paper but much more difficult to execute. Moreover, bottom line decisions usually yield results that are more quickly and easily measured than top line ones. Don’t spend money on an ad campaign and you know immediately how much you saved the budget. What you don’t know is how many new clients failed to find you and what sales you did not make. Invest in training for your sales staff and you’ll know the price, but how and when can you determine if it led to profitable growth?
The Great Recession of 2008 pushed us all more strongly toward bottom-line thinking. Now, as the economy improves, we need to start shifting back into top line thinking.
Independent showroom businesses face increasing competition from national companies and simply controlling costs will not provide enough competitive edge to survive, much less thrive, in a new environment. On the other hand, investing in the top line can be scary and it can be a challenge to pinpoint exactly which decisions will make the difference.
Over the last 20 years, the decorative plumbing and hardware industry has matured. If you’ve been in the DPH industry during this time, you’ve seen the evolution in all phases of the business: brands, product trends and business models. We’ve seen concept stores rise and fall and new models take their place. Some iconic brands no longer exist and fashions (chrome with gold accents, glass vessels and such) blossomed and disappeared. We have seen the introduction of unique products followed by a wave of knock-offs.
INDUSTRY GROUPS & ASSOCIATIONS
The DPH industry will continue to mature and, as it does, competition will increase and change. Fortunately, this maturation has also seen the rise of trade associations and buying groups devoted specifically to the DPH industry. Concentrating on just this industry, these groups have been very effective with helping independent showrooms to compete. And, while both types of organizations provide important tools, each fills a very different role for our businesses.
Broadly speaking, buying groups focus on the bottom line while trade associations focus on the top line. Buying groups exist to create conditions for their members to get buying power not available to a small, single business. National (or multi-national) competitors have economies of scale that an independent does not enjoy. Buying groups offer a way for independents to join forces and gain the same economies of scale in purchasing products and services. A good buying group provides members with programs, specials and rebates that level the playing field and impact the bottom line.
A trade association’s activities include networking, education and professional development, best practices, lobbying, information and local and national events. Trade associations may be large or small, but all work to advance the interests of their members through these activities. They may offer certification programs or specialized training. Some will lobby government, but all are essentially about helping members be better in their professions and businesses.
How important is it to be a part of a buying group or a trade association? My experience is that each brings value, but in different ways and to different parts of our business. My buying group meeting is concerned primarily with vendor programs and the health of the group plus a touch of education. Most of my time at the annual conference is spent meeting with vendors to review sales, give feedback and make choices for the coming year.
At the conference for my trade association, the Decorative Plumbing and Hardware Association, education is first; new products, selling, marketing and best practices are all subjects of the day. Most of my time is spent in education sessions. There is also the opportunity to meet vendors that are not a part of my buying group.
Networking is an important part of both events. I think networking can be one of the more under-rated benefits of conferences. Over the years, I’ve been able to develop a national network of people that I never would have met without spending time with these groups. One of the most valuable things around is good information, and that is what such a network provides.
It’s not unusual for people to feel like their buying group is critical, but see no value being a part of a trade association. To some degree, I can understand this. Clearly, the benefits of a trade group are much more difficult to measure, and it’s human nature to question the value of something intangible. If I go to my trade group meeting and can’t come back with things that immediately increase profits, was it worth the effort?
It’s also true that trade groups can be expensive, so how do you justify money spent when you can’t point to immediate results? Well, one might consider Ben Franklin’s adage, “An investment in knowledge pays the best interest.” Belonging to a trade group is about investing in yourself and your industry. It’s about learning to better manage your top line, the place where you can make a real and significant difference to the health and growth of your business.
About a year ago, I realized our sales team was stuck. They’d spent several years working in a slow economy, being told things were too expensive and dealing with Internet competition. When I discussed the situation with them, many insisted people only wanted mid-range products. I knew they were wrong but I also knew telling them so was not enough. They had to believe it.
Fortunately, our trade association meeting had just provided several hours of training on this problem and I now had not just information, but a technique and vocabulary to address the issue with them. I was able to effectively communicate and challenge their assumptions because I had just had mine challenged by two very effective speakers.
This may be one of the biggest benefits a trade association offers: a way to get out of your bubble and challenge your assumptions. Showrooms everywhere face many of the same issues. Coming together with a group of people who are all struggling with the same problems you face provides a tremendous opportunity to brainstorm. You think you have it all figured out, only to hear someone else look at the same thing in an entirely different way. It’s from these exchanges that new ideas are born.
A friend of mine once observed that we are often so busy working in our businesses that we don’t take time to work on them. It’s easy to use all of your time running your business and never step back to plan where it’s going.
Today, many people I talk with are bemoaning the problem of finding good people and keeping the good ones they have. They wonder how to effectively market, and struggle with all of the social media and other media and how to reach their target audience. Some are seeing consolidation and the disappearance of smaller players, leaving the remaining companies to wonder how they will compete when the big boys come to town.
These are real problems we all have to address and the solutions won’t be found in better buying programs. Go where there is knowledge and a network of industry peers to help. Find the trade associations for your segment of the industry and get involved. Investment in yourself and your people and your strategy – in other words your top line – will yield the best interest. KBDN
Kate Brady is director of showrooms for General Plumbing Supply, Inc., and immediate past president of the Decorative Plumbing & Hardware Association.