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July is "Back to Basics" Month

During the spring and summer months we tend to get caught up in various new projects: expansion, new acquisitions, refinancing, and other large-scale plans. But we must never loose sight of the purpose of business in the first place: to make a profit.

Now is a good time to revisit profitability because now is the strongest selling season. We have four more good strong months before the winter months pull sales down. Taking action now could make a difference by year’s end.

There are three basic phases in reviewing the profitability of gasoline service stations and related businesses.

Phase I: Gross Profit Percentage

Basically, these are the gross profit percentages we normally expect to see in the sales categories:

	GASOLINE		 7%	-	12%
	CIGARETTES		15%	-	20%
	BEER			25%
	VENDING			30%	-	40%

You will, of course, be familiar with your store’s differences. Your Gross Profit Percentages may be higher. The important thing is to be aware of your percentages.

Phase II: Return-on-Investment [ROI]

Most dealers are keenly aware of the gross profit percentages. Many stop there. But you can squeeze more profit from the business by carefully controlling the size of inventory.

EXAMPLE: Beer sales of $2,000 at 25% is not very good if the inventory each month is $20,000. You may be making 25% on $2,000, but $18,000 is tied up and not making any money at all. The amount of money that the $18,000 does not make outweighs the 25% on $2,000.

The general rule of thumb is this: Your inventory should not be more than 60 days’ of your sales. At that rate of turnover, you can stock enough not to run out of any good sellers, but will not be wasting money on excess inventory. If you shorten the turnover period by shrinking your inventory too much, then you will start running out of top-sellers between orders. That is far worse than having excess inventory.

1. Inventory should be about twice the monthly sales.
2. Do no buy specials if it will take more than two months to sell.
3. Look for and get rid of old merchandise. Return it. Sell it at a deep discount.
4. Curb your buying beginning in August. Try keeping your inventory lean for the winter months.

   Phase III: Sales per 1,000 Gallons

   When your Gross Profit Percentages are as high as you can get them and the inventory is as efficient as possible, what else can you do to improve sales and profitability?

   Sales-per-1,000-Gallons is a mostly overlooked management tool. That is probably because each store is so different that we cannot easily apply national averages. Sales-per-1,000-Gallons is best used on a store-by-store basis.

   Ranges per store can vary:

   
   	Cigarettes		$ 75	-	$100 	per 1,000 gallons
   	Beer			$ 50	-	$ 75    per 1,000 gallons
   	Vending			$100	-	$250    per 1,000 gallons
   	Deli			$200	-	$300    per 1,000 gallons
   

   EXAMPLE: Your Beer Sales-per-1,000-Gallons is $150, far more than the chart above. This tells you that your customers think of you as their source of beer. Should you expand into related products? Should you start making bigger, better displays? Promote specials with outdoor signs and point-of-purchase displays?

   Keep working on your long-range plans. They are important. But take time out to review the basics: Gross Profit Percentages; Inventory Control; Sales-per-1,000-Gallons.

   Copyright © - 2003 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

   June 29, 2003