How to Capitalize for the Looming Economy and Pawn
Ladies and Gentlemen in Pawnland!
I have been involved in some lengthy chat on one of the pawn forums recently about various debates over the success and failures of some of the types of productivity systems and bottom line commission programs we have been introducing for decades. In short, we wanted to feature one of our client stores in Texas, city UN-named but here are some of the results our team has achieved with the properly motivated clients who really wish to make a difference in their lives and their businesses and stay on point with our game-changing proven programs and techniques.
Owner operators usually have their own modi to operate by and all have a wide range of how they do it. In the case of ramping loan balances and bottom lines with good checks and balances in play, here is a snapshot of some recent results with one of our clients.
This store is located in Texas and here’s a bit of history – over the 20 year period the owner has operated this store that I am illustrating, loan balance in a major city never grew to more than 200K and was a flat line for a decade more or less with forfeiture rates around 30% when we first came in about 2 years ago.
The store had twice that much in cost in inventory and was down to barely 2 X turns of inventory dollars per year – they love making money and average margins were about 51%. High margins and high levels of inventory create large amounts of aging, dated, broken and otherwise FUBAR product stacked up in the store and they could not figure out why they were accumulating so much of it (price/motivation)!
The old’ school theorems of yesteryear which are still very much alive of lending low and selling high in this industry today was and had been at play for more than 2 decades in this operation. The average yield on that loan balance was about 13% per month or about 156% on an annualized basis. Translation the 200K of active loans punched out about 300K + per year in service charge fees.
With the introduction of productivity systems, bottom line compensation for the team leaders based on store profit and the whole mix, 2 years later we have a store with a 450K loan balance, forfeits are up to about 40% (which industry is leaning closer to as an average in the high yield states dealing in general merchandise) were still yielding the 13% a month and pawn convenience fees are now up to 650K plus per year with most of this on customers they already owned I might add.
With the increases in loan balances and forfeitures more product is being generated and that’s why performance based productivity systems along with bottom line store management compensation programs have to keep all of these components moving correctly.
There are penalty systems to the management teams for various age levels of the their inventory and also reward and bonus structures that reward for aging reductions, increase in inventory turns and yields, increases in PSC and pawn related fees and a blend of some other matrix’s.
The current projection for the inventory turns this year by the end of December is 13 X, meaning we went from 2 turns per year to more than 13 turns of our average inventory dollars, our margins are now down to 18% across the board with the dump of the junk and the roll and flow of the incoming from the increased loan balances.
In the end selling more of it at lower margins and increasing turns hits the barometer.
This combination increases free-cash flow considerably, more customer transactions, more product coming and going, enhanced revenues and bottom lines are the ultimate results.
In the case of 2 turns at 50% a year, the yield on the inventory dollars was about a 100% return annually which is what this store was averaging for some time. 2013 will finish up this year with an inventory yield over 200% ++.
The store has effectively doubled its yield return on inventory dollars, cut the overall inventory levels on hand to less than half of previous averages, increased PSC by more than 350K per year, they have doubled their staff, added onto the building and are just absolutely killing it as we say.
Based off their P&L we have seen overall expenses at store level increase in 013 about 20% across the board or about 100K annually, but their bottom lines have grown by more than 500K as currently projected for 013. Most of the operational expense increases were payroll with the addition of bodies and productivity programs I might add.
There are two other factors relating to this store – the percentage of net to revenues and the overall return on assets. The percentage of net profit to total revenues in 2011 was about 19% for 013 the projection is over a 35% return on the revenues.
That’s a 35 cent return on every dollar of revenue generated after all expenses.
The return on assets (loans and inventory) in 2011 after all expenses were applied were about 21% – 013 is projecting to over a 60% return on the assets.
In effect the store has tripled its return on its efficiency in keeping the dollars and cash flow rolling while maximizing PSC returns and yields on inventory dollars, overall returns are 60 cents per year on every dollar tied up in loans and inventory after all expenses are applied. Much better than a 1% CD at the bank folks!
At the beginning and ending of every client engagement we are involved in the financial results and benchmarks are analyzed and understood and a lot of amazing things can happen when folks flip a few light switches around and just open their eyes and focus.
PCG has been blessed with so many wonderful folks we have had the opportunity to work with and in the end what hits the bottom line wins especially with world class white glove customer service – after all we are in business to make a profit and hope we can continue to pay the IRS more than our fair share to the less privileged.
Contact PCG today and see why hundreds of our clients globally are witnessing significant results and outlooks in their operations today!
Happy Holiday’s everybody!!
Pawnshop Consulting Group, Inc.
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Jerry Whitehead – Consultant
Pawnshop Consulting Group, Inc.
8501 NW 77th Street
Tamarac, Florida 33321 USA