Top line sales are for egos – it’s the bottom line that counts.
That line always gets people’s attention. In the Hardware/Building Materials and Timber industry, sales volume often takes center stage – but it’s profit, not revenue, that keeps a company alive. Understanding where profits come from, how they’re lost, and what salespeople can do about it is essential for every trade counter professional, outside salespeople, to the corner office.
The Profit Equation: Understanding the Basics
Profitability starts with grasping a few key definitions. Gross Margin (GM) is the difference between what a product sells for and what it costs the company – the cost of goods sold (COGS). Expressed as a percentage, it’s a critical financial metric that tells you how efficiently your business turns costs into income.
- Gross Margin (or Gross Profit) = Sales Revenue – Cost of Goods Sold
- Operating Profit = Gross Margin – Overhead Expenses
- Net Profit = Operating Profit – Interest, Taxes, and Depreciation
While these seem straightforward, the reality is that most dealers operate on razor-thin margins. If an industry average is roughly 6% net profit – meaning a dealer doing €5m in annual sales keeps only about €300k after all expenses. The other 94% goes to inventory, payroll, delivery, and overhead. With numbers that are tight, small mistakes or inefficiencies quickly become costly. That’s where salespeople have enormous influence – for better or worse.
Gross Margin vs. Mark-Up: Why It Matters
One of the most common misunderstandings in pricing is the difference between gross margin and mark-up. If an item costs €100 and you want a 33% gross margin, you divide the cost by 0.67 to get a sell price of €150. But if you simply mark up the product 33% (cost x 1.33), you’d sell it for €133 – cutting your margin to only 25%.
The difference is more than math; it’s psychology. Many salespeople feel guilty applying “too high” of a mark-up, not realising that gross margin percentages more accurately reflect what’s needed to run a healthy business. Understanding that distinction is key to profitable selling.
How Salespeople can Kill Profit (Usually Without Realising It)
Profit erosion doesn’t always happen in the accounting office – it often starts on the sales floor or jobsite. Here are a few common culprits:
- Selling on price alone
- Not fully understanding your products
- Providing inaccurate delivery information
- Making “fat-finger” or quoting mistakes
- Treating all products – and all customers – the same
A €1,000 special-order mistake doesn’t just cost the company €1,000 – it can take €16,667 in new sales to recover, given a 6% net profit. (€16,667 x 6% = €1,000).
How Salespeople Can Boost Profit (and Job Security)
The good news? Salespeople can also be the strongest drivers of profitability. Small, consistent improvements in how they sell and manage customers can dramatically increase margins.
Here are a few proven strategies:
- Sell companion products
- Eliminate mistakes
- Manage deliveries strategically
- Sell upgrades
- Price intelligently
Remember: you don’t have to sell every product at the same GM%. That’s not how profitable dealers operate.
The Special-Order Myth: “Same Margin” Doesn’t Cut It
Special orders deserve special margins. The true cost of handling a special order goes far beyond the product itself. There’s time spent researching, quoting, tracking, expediting, receiving, staging, and delivering – plus the risk of errors. Getting higher gross margins on special-orders isn’t greedy; it’s good business. Treating those items with the same margin as stock material means you’re losing money on every transaction.
Escaping the “Margin Rut”
Many salespeople fall into what I call a “margin rut.” It’s the habit of always using the same gross margin percentage on the same products regardless of the customer or situation. It’s comfortable and easy, but it’s also costly. Breaking out of the rut requires awareness, discipline, and leadership support.
Think Like an Owner
When salespeople begin thinking like owners, everything changes. They start asking different questions:
- Can I deliver this job more efficiently? (i.e., fewer deliveries)
- Can I sell more product categories to the customer(s)?
- Can I get higher gross margins?
Professional salespeople see themselves as profit partners, not just order-takers. They’re organised, reliable, and value their time and their company’s reputation.
Growth Requires Change – Be Like a Lizard
Lizards shed their skin to grow. They don’t cling to the old, dead layers – they shed what no longer serves them so they can thrive. The same applies to Hardware/Building Materials and Timber salespeople.
Growth requires change – whether becoming more organised, better time management, or
adjusting pricing strategies.
The Traits of a True Professional
The most consistently profitable salespeople share these traits:
- Integrity and honesty
- Accountability
- Responsiveness
- Product knowledge
- Professionalism
Professional salespeople don’t just sell products; they build trust. And trust drives sustainable profitability.
Final Thoughts
Today, Hardware and Builders Merchants face tightening margins and fierce competition. But profitability isn’t just a financial challenge – it’s a sales culture challenge. When salespeople understand how profits are made, take ownership of their role, and approach every interaction with precision and pride, the results are transformative.
Top line sales feed the ego. Bottom line profit feeds the future.
Mike McDole has 40+ years’ experience in the Lumber & Building Materials Industry in the USA and is the principal of Firing-Line LBM Advisors (outside of Boston, Massachusetts). He helps LBM dealers of all sizes with management strategies, sales strategies, salespeople, gross margin improvement, profit improvement, and more. He can also help Hardware and LBM Dealers in Ireland.
Mike can be reached at Mike@FiringLineLBM.com
