Possible yearly earnings
What kind of sales volume does it take to support a six-figure salary in a two-man shop? May 9, 2001
Question
What kind of sales volume does it take to support a six-figure salary in a one to two man shop? I'm not familiar with the industry's financial side--where can I find out more?
Forum Responses
The National Association of Store Fixture Manufacturers (NASFM) does a Profit Report every year. I think you can buy a copy of it off their web site.
Here is a sample of some of the info in the report. A "Typical NASFM Mfg" in 1999 had $110,866 in sales per employee with a gross margin of $23,788 per employee. Let me know if you can turn that into a six-figure income.
It is my experience that obtaining a six-figure salary with just a one or two man shop is simply impossible. As stated above, the average store fixture manufacturer realizes about $110,000 in sales per employee. However, I would bet that most of these companies are large and very efficient operations with at least some CNC equipment. The average small shop probably does not come near to that figure. If you can generate gross receipts of 80-100,000/man you will be doing well. I know of some shops that generate sales of 60-80,000/man.
For argument's sake, let's say that you are able to make a net profit of 20% before paying yourself (10% if you pay yourself a salary of $50,000 annually). To make $100,000 a year, you would need to gross in the neighborhood of about $500,000 annually. To gross 500k, you will probably need to have at least a 4-person organization. However, this does not mean they all have to be on payroll. With an independent designer/salesman on commission and an independent installer, you and a helper can build the cabinets and foreseeably approach that $500k figure if you use an efficient system.
If you sublet the doors you have expanded your ability to produce product without adding people. Add a sublet finisher or have at least the doors finished, again you have increased your sales ability without adding people.
No one has mentioned real estate. As a small business owner you will need a location for your shop--why not buy? You can buy a fixer upper and work on it in your spare time (ha-ha) or weekends. Not to mention the good source of labor you have that would likely appreciate a little side work. This may not be an option until you are about five years into your business. Many commercial tenants expect to spend big bucks renovating office space, improving the value of your building at little cost to you.
If you get a large building you can lease out most of it and have other people pay your mortgage and also have a monthly income. Your business will be paying rent to you!
With a 10,000 square foot building (your shop = 3500-5000'), you could clear $25,000 a year after expenses in the beginning and much more with time.
You could say that with a good business plan and 3 employees (including you) the boss could clear $75,000 plus income from your investment property = 100k. I don't think this can be accomplished in the first few years. You need a few sacrificial years unless you have an investor with deep pockets.
Another point: a fully leased property that has been greatly improved has significant value to the banks. You could borrow against it in time.
About outsourcing doors: It may increase your gross receipts but may not increase your net proportionally. Higher gross receipts don't necessarily mean higher net. That is because the maker of the doors must make a profit on the doors (which would have otherwise been your profit). The possible dollar gain is that they may be able to produce them cheaper than you could produce them and still sell them to you at a price you can make SOME profit on without the labor expense, (but not necessarily 20% of the gross sales amount).
In other words, they may be able to make the same amount of profit as you would have, but be able to sell them to you cheaper because of one or all of the following: being able to buy materials cheaper, hiring cheaper, having better machinery that allows faster production, having employees who produce doors faster because that's all they do, locating their business in an area where it is cheaper to be in business.
On the flip side: Outsourcing the doors may allow you to focus on what you make the most dollars on. If you make 15% profit on doors that you build yourself and 25% on boxes, go for the boxes and outsource the doors, allowing you to take on more work at 25%, provided of course that you have enough work to keep you busy.
I would think that by outsourcing doors you would be able to increase capacity, free up floor space, and turn more jobs in a year that would lead to a higher gross and a higher net. Even if all the costs were equal, why tie up labor, space and resources?
It's all about your profit margin, and six-figure incomes rarely fall into the hands of those that don't know theirs. It's quite possible but takes much more than being a good builder. It's certainly easy to figure out once you know your profit margin, how much you need to sell.
I used to work with a guy who has been in the 6 figures for a couple years. He told me that he made 120,000 one year with a two man shop. He does quality products and fast turn around.
