Tue Jul 27 2010

What is a 1% saving worth to your club's operation?

Simple maths show that for every 1% reduction in your 'cost of goods' (COG) you will save $10,000 per $1million in revenue you receive each year. To achieve this same amount of dollars strictly by revenue received, you would have to generate at least $30,000 in additional revenue to have this same positive $10,000 amount flow to your bottom line.

To make a 1% saving for your business, firstly set some financial benchmarks for your facility and each individual department area. These can be based on industry standards (which can be tough to source nowadays in Australia), or based on past trends on how you are currently performing. Alternatively, you can talk to one of your colleagues at another facility and ask them what they are achieving. International golf management companies target COG for retail merchandise somewhere between 50% and 70%, depending on the product mix and segementation of facility. COG are in the high-end range when your facility sells a lot of golf clubs and balls with smaller margins, and the lower-end when you primarily sell soft goods with higher margins. Food COG is targeted in the low 30%s and alcohol in the high 20%s. Of course again this depends on the mix of products sold, what the products are ultimately being sold for, plus wastage, pilfering, and accounting standards.

Here are few basic areas you can look at to help you reduce a few percentage points off your COG and in turn improve cash flow and profitability at your facility:

1) Inventory control -

            How secure is your stock? Is it stored somewhere that can only be accessed by the appropriate people?

            Are you properly accounting for "knock off" drinks, employee purchases, and business meeting charges?

            How much stock are you losing to wastage, or due to poor ordering or pilfering? This could add up to 1-2% of your COG.

            How often are you counting total inventory? (Once a month is a minimum standard)

            What process do you have in place for ordering and receiving products? Are items being dropped at the door by the delivery person without a staff member accepting?

2) Pricing -

            Are you selling items at a price to your customers solely based on what you think they will pay, or are you basing selling prices on what you actually paid for the items?

            Are you moving old stock out of the shop at the appropriate time by regularly discounting and clearing dead stock?

            Have you recently reviewed and compared what your local competitors are selling the same items for?

3) Purchasing-

            How much stock are you regularly ordering and how often are you turning this stock?

            Are you part of a buying group? You can start your own with a few of the local courses.

            Are you sourcing best prices on a regular basis, or just staying with same supplier because it's easier or because you have always bought from them?

            Do you have a yearly purchasing plan that is based on projected sales for each month?

            Are you getting 'best prices' off your suppliers for being loyal to them?

            Are you paying invoices early enough to receive all available discounts?

Take some small steps each financial quarter to trim down your COG percentage points. Each department at your facility should be seen as an individual business centre and not solely as a service centre. Set individual budgets and reports for each and most importantly - track your results!

Written by Mike Orloff, Golf Operations Specialist- Golf Industry Central

Contact Mike for all your operational needs at morloff@golfindustrycentral.com.au or  +(61) 0415 682 259

© Copyright Golf Industry Central  September 2008

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