Personal Bests

Set goals, achieve them, then raise the bar higher

The building supply business has its own, albeit less familiar benchmarks. Setting benchmarks is a good way for owners and managers to judge their success. Working without them is like playing a game without keeping score--it's hard to know whether you are winning or losing. But in business, as in sports, setting benchmarks brings out an organization's competitive spirit.

Be Realistic

Just as Olympic hopefuls rarely set world records on their first try, companies must set goals and strive for benchmarks that are realistic. They don't have to be in the highest echelons of industry performance, at least at the outset. Here are a few of my favorite benchmarks to strive for:

• Return on assets: Fifteen to twenty percent before taxes is the benchmark. If you are going to risk capital in inventory and accounts receivable, you should be justly rewarded.
• Net margin: Five to six percent before taxes is just about optimal for a privately owned, independently run building supply business.
• Debt to equity: If total capital is made up of debt and equity, then equity should represent 60% of total capital. This benchmark is especially important today, since banks frequently include covenants in loan agreements that impose penalties for going below 60%.
• Current ratio: This benchmark is the relationship between current assets and current liabilities. In the building supply business, we look for $2 in current assets for every $1 in current liabilities. This ratio is usually necessary to meet monthly obligations without relying too heavily on borrowed capital.
• Gross profit per employee: The benchmark is $63,000 per full-time equivalent employee. But in our last survey, we encountered 15 dealers who report doing better. These 15 Michael Jordan-esque dealers achieved over $100,000 per employee. Watch this one especially. Productivity in our industry is improving.
• Personnel-related expenses as a percent of total expenses: Sixty percent is the number that dealers should strive for. Personnel-related expenses include salaries, commissions, payroll taxes, group medical insurance, workers' comp insurance, etc.
• Delivered sales per truck: This one depends a lot on where your business is located, i.e. metro markets with a lot of traffic or rural markets with more geography to cover. Excluding pickup trucks, we see a lot of large- volume dealers achieving as much as $2 million per truck.
• Average sales per outside salesperson: Approximately $2 million is generally considered to be the national average, but in metro markets this number increases to around $3 million. A group of salespeople servicing large tract builders can often improve this average as they take advantage of economies of scale.
• Outside sales expenses: Don't allow the cost of your outside salespeople to exceed 3% of total sales or 13% of gross profit. Around 2-1/2% of sales is typical.
• Average collection days: Forty to 45 days is excellent. Dealers who allow days outstanding to average much beyond 50 leave themselves open to real problems, especially in volatile economic times.

Depending on your company objectives, you may also want to set other benchmarks, such as merchandise returns as a percentage of sales, average stops per driver, average loads per loader, sales per payroll dollar, one-line sales tickets as a percentage of total sales tickets generated, and the percentage of quotes that become orders.

Each time you set a new record, raise the bar. Each time you achieve a new "company best" level of performance, something good is happening that's worth celebrating.

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