The Dealer's"Cost of Doing Business

by Paul HOLLENBECK

(The following article i,s from a speech deliztered' by Mr, Hollenbech to the nxost recent conaention of the Oklohom.a Lumbermen's Association, Oklahoma City, last Fall. Bccause of its length and import.ance to all, reta'xl bu'ildinE materiols dealers, the speech is being printed laer three consecutiae i.ssues of TuB Cer,IroRNIA Lulrsen Mancneur, of whirlt this is Part 2. Mr. Hollenbech is tke head' of theLumb er S ervic e C om pany, B urb ank, C ali'f ornia. )

(Continued from the May 15 Isswe) fn fact, I sometimes wonder if we ever did have a oneprice policy. I remember back in 1933 during the depression u'hen I was selling lumber in Los Angeles for a large concern. The cost of No. 1 Common Dimension rvas $30.00 per thousand. I was sure that I had a school job sold for $3200-a markup of only $2.00 per thousand. One of our large competitors took the job for $29.00-$1.00 under our cost.

The retail lumber business operates on a cost of doing business that is far less than any other retail business that I know about. The ultimate answer to'our problem lies in getting paid for what we do. This sounds simple, but it really is not.

Our industry practice has been to take our average cost of doing business, apply mark-ups that will, in theory, result in net profit. It is a simple matter to get a retail lumberman to cut his price after he has set it. All you have to do is tell him that someone else is selling it for less.

If he knew more about his cost of doing business, about his price structures and the effect of discounted prices, he wouldn't be so ready to accept the story that someone else is selling for less or the idea that he could not afford not to meet the price.

A better understanding of the mathematics of how a business operates has become the most 'important problem in our industry today, because without this understanding we cannot even hope that we can lick the unsatisfactory price trend in our industry.

If we were to make a guess at what average costs of doing business in the United States is today for retail lumberyards, it would probably hit someplace betrveen 17 and 25/o, or an average of al>out 2O/o. Prior to l94O the accepted net profit goal used to be 5/a to sales. This totals 25/o gross profit.

To make 25/o profit on sales, the mark-up on cost would have to be z,lmost 33/o. For example: if 2x4's cost $100.00 per thousand, the selling price would have to be $133.00. There must be something wrong with our mathematics when we f,nd dealers selling 2x4's for $110.00 to $120.0o under these conditions.

Obviously there is something wrong with these figures, otherwise there would be more lumberyards going broke than there are today.

The thing wrong' rvith these figures, and with our th,inking. is the way we have been trained. We used to be told that the only way to make money was to have one price for everyone. It didn't make any difference whether a purchaser wanted one 2x48 foot or a thousand pieces, the price should be the same.

I have no quarrel with this theory for past operations, but the economics of our business has changed and it doesn't work today.

One-price policy is a thing of the past.

It is evident that our old idea of one price to everyone has boomeranged, because this was the idea that created in our minds the thought that tve must be competitive, the thought th t rve could not sell a job unless ottr prices u'ere the same. This stabilized-price idea allou'ed us to do business without actually learning the true mechanics of business analysis.

When the managers and or'vners in our industry learn how tcr properly analyze their orvn business, and to price their merchandise, our net profit problems rvill be 2 thing of the past.

Pricing merchandise is the guts of our problem. Any budgeting of costs, sales or business analysis not carried completely through to that end is without true benefit. "Compensatory Pricing" is another way of saying "Get paid for whbt you do." Or, if you are going to cut an established retail price, rvhat factors enter iirto the sale that will intelligently allovl' yott to cttt the price? There are many.

Often tirnes there can be more profit made on a cut price because of the special considerations involverl. T,he delivery

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The H-E Man stays on top

u'hether it's log rolling, or tt u'hirliug, actiue, market lor

I1' E REDWOOD Procltrcts

With skill and bal:rnte, the H' E r\lAN svnrbolizc: rhe IiOLMLS FltlRI.-K,\ lunrber or.qanizarion Lrl sraring on tolr of thc Qrrrlin (.onrpetition, :rnd bv a .real <lesire t<r u,rrrk uirh rcrail lrrnrher pe<tple tor tluick tilrnorer of IJ'H I{l:l)\\'(X)l) shipments. Ilenrenrber:

THE H.E MAN IS THE LOG ROLLING CHAMP and be can help 1,ort be a Chanp iu srrccesslul Qualitl' luTtber selling.

H(ITME$ EUREI$ TUMBER C(IMPA]IY

Monulscturing Pldnt - Eureko, Colilornio f 43O Russ Building, GArfield l-O126, 5qn Froncisco

712 Archirects Building, MUtuol 9181, Los Angeles rt has been long "gr".d*ahia tl.r. i, more than one way to ski,n a cat; and likewise that there is more than one way to outwit a competitor in business. Ever hear about how the greatest of all meat packers was outwitted by a newcomer in the same field?

In Arizonq qnd New Mexico: R. W.

..THERE CAN BE NO FIFTY-FIFTY AME. RICANISM IN THIS COUNTRY. THERE IS ROOM HERE FOR ONLY 1OO PERCENT AMERICANISM, ONLY FOR THOSE WHO ARE AMERICANS AND NOTHING ELSE. WHEN TWO FLAGS ARE HOISTED ON THE SAME POLE, ONE IS ALWAYS HOISTED UNDERNEATH. THE HYPHENATED AMERICAN ALWAYS HOISTS THE AMERI. cAN FLAG UNDERM*OST."

Those are the words of a great American, Theodore Roosevelt. Wonder what Teddy would say today, when the Inter,nationalists and One-Worlders are so blatant in uttering philosophies far different from those quoted above? Reminds me of what a regular writer in the Los Angeles Herald and Express frequently suggests, namely: "In every election be sure the United States has a candidate."

The stoutest, and probably the most effective, speeches being made in this country against our foreign econ'omic aid program are by flerman Talmadge of Georgia, exGovernor of that state, and the man whose apparent certainty of election this year to the Senate caused good old Senator Walter George to withdraw from the Senate race. Mr. Talmadge is smart, and he makes fun of the giveaway prograrn, and certainly no program was ever more susceptible to such treatment. Talmadge goes at it this way: "Out in the Philippines our people are installing outdoor facilities (plumbing), ild then we're sendin' experts out to teach 'em how to use 'em We gave Pakistan $65 million to build a grain elevator, but there's no money to build any in Georgia. We're helpin' Portugal build six-lane highways, but we can't get the two-lane roads we need in Georgia." Isn't it too bad Talmadge was not in the Senhte when our solemn Secretary of State was telling the boys on the hill how vital it is that they keep sending the billiqns to the folks overseas? Talmadge would have laughed him out of court. What this country needs most is some men with wit and humor to look at some of our problems objectively rather than fearsomely.

*'k*

Phil D. Armour was the father of the modern meatpacking industry, and of refrigeration shipping. He thought through and put into operation the first meat-packing

BY JACK DIONNE

plant. He it was who started the great industry toward the point where they sell everything from meat animals except the squeal. ***

He advertised to the farmers whose hogs and cattle he wanted to buy: "Go look at your local slaughter houses, then come and see how I do it." He built the first refrigerator cars, making it possible for the first time to ship meats any distance except in dead of winter.

This thinking Americ;, ;"; in a log cab n, worked longer, harder and more intelligently than other boys until he topped the world in his chosen line of business. For a long time he had an almost non-competitive business. And it grew, and of course competition came in. Nelson Morris, a very bright Hebrew, 0"":-*. a*serious competitor.

So strong did Morris become that Mr. Armour decided that it was necessary, for the good of the industry, that he and Morris should "play ball." But Morris did not come to Armour, so Armour invited Morris to lunch so they could talk business. Naturally, Armour expected to dominate any deal they might make, as his business was much the bigger and more powerful.***

Morris used on Armour a trick the latter had never dreamed of. He learned that Armour was.not only a strict teetctaler, never touched intoxicants, but also that he was a great tea drinker, and used strong tea'as a stimulant with his meals. So, when thejz lunched, Morris let Armour do the talking and ate very little himself, but drank a great deal of tea while he listened.

Tea ! Yes, indeed, he would have more tea-strong tea. After luncheon Armour hurriecl back to his office and ordered his lieutenants to make the best deal possible with Morris, because, he said, "You can't expect to out-think a man who drinks that much tea." And they made the first big deal in the meat-packing business, with tea playing a most important part. Some salesmen buy'em liquor. But big-time salesmen, like Nelson Morris, just drink tea.

Years ago a big city ne$'spaper offered a generous cash prize to the woman writing the best essay on "How to Win and Hold a Husband." The winning essay contained just two words: "FEED HIM." And when you come to think of it, those two words would make a prize-winning formula for salesmen of all kinds and in any line. Just follow the philosophy that Morris used with Armour. ***

Not necessarily fine viands and thick steaks and lickeralthough with many buyers those things help get orders- but feed him whatever it is that the customer is hungry for. Discover the weakness or weaknesses of the prospect, and act accordingly. Lots of customers won't let you buy them a drink or a steak, but may nevertheless be hungry for other things that they would accept, such as intangible things; because all men hunger for something, each man having his own particular appetite.

Some men love good "Lril", lveil told; some are interested in practical information; some have hunti,ng, fishing, golfing, motoring and other hobbies too numerous to list; while some men like sympathy, praise, understanding, affection and other intangibles. Find out, and feed him. Do it diplornatically. Never let him see the handle of the knife, fork, or spoon, or realize that he is being fed. ,f*t<

I really dislike to write this last paragraph on the subiject of feeding prospects the things they like, but truth impels me to admit that flattery is one of the most lethal weapons in the arsenal of the salesman of to'day. That old human frailty that has come down to us from Father Adam, is to be found in the large majority of men-the love of flattery. With smart men it must be smartly handled, or the e.ffort will boofnerang'

Forty years ago one of the wisest and most lovable lumbermen I ever knew gave me some advice about business me,n in general. He said, "With most men, just take your needle along when you call on them." The name of my adviser was "llncle" Ji- Rockwell, of Houstqn. And

I have found ever since that his advice was overfowing with wisdom, and that the needle of flattery can be used on the large majority of business men. Just handle it with skill and care.

And, speaking of salesmanship-which we frequently do in this column, a tourist stopped at a little country store as he was driving through, and looked in open-mouthed astonishment at the enormous stock of salt he saw piled high on the premises. There was stack after stack of sacks, boxes, and eve,n barrels of salt, all over the place. He said to the rural storekeeper: "You must sell a lot of salt here." AnC the merchant ruefully replied: "No, I don't sell much salt, but you shoulda seen a guy that came through here a month back. Now, THERE was a salt salesman!"

I have quoted before ; ;.r: columns a salesmanship talk of Abe Lincoln, but it is well worth repeating. He said: "When the conduct of men is designed to be infuenced, persuasien-kind, unassuming persuasion-should ever be adopted. It is an old and true maxin that 'a drop of honey catches more fies than a gallon of gall.' So with men. If you would win a man to your cause, first convince him that you are his sincere friend. Therein is a drop of honey that catches his heart, which, say what he will, is the high road to his reason, and which, once gained, you will find but little trouble convincing his judgment of the justice of your cause, if indeed, that cause be a just one.

"On the contrary, assume to dictate to his judgment, or cornmand his action, and he will retreat within himself, close all the avenues to his head and heart, and though your cause be naked truth itself, transformed into the heaviest lance, harder than steel and sharper than steel can be made; and though you throw it with more than Herculean force and precision, you shall be no more able to pierce him than to penetrate the hard shell of a tortoise with a rye straw. Such is man, and so must he be understood by those who would lead him,*even to his own best interest."

Such are the eloquent words of Lincoln. That his philosophy seems to operate without thought of the previously expressed philosophy in this colurnn, that of taking a needle along to inject fattery into the subject, we simply mention in passing. Both methods are no doubt useful under different conditions, and when applied to different people.

Eorney J. Thompson Elected toOxnord City Gouncil

Earney J. Thompson, owner of the Thompson Lumber Coinpany, Oxnard, Calif., has been elected to the city council there. lr{r. Thompson, a former councilman, and one of his running mates, an incumbent, went into office with more than 1700 votes each r,vhile their nearest rival garnered only 643. Mr. Thompson, who is 55 and operates the retail yard at 1205 S. Oxnard Blvd., received the highest number of votes, 1,762. lle rvas sworn into offrce April 17.

In a personal message to T.he CALIFORNIA LUMBER

wEtcoME !

In this issue, we welcome these nelv advertisers into the family of California Lumber "1\{erchant-isers":

American Sisalkraft Corp. . .Page 7l

Calif. Sugar & West. Pine Agcy. ... .77

Bob Middleton Lumber Co. ........32

The Visador Company ........37

MERCHANT, Earney Thompson many lumber dealers are 'too busy in community affairs. To me it is problems ;,rnd solutions. Alsorn'atch. and this can be done !" said, "Sometimes too ' to take an active part very refreshing to learn taxes are one thing to

Deolers to Get Their Innings on Seqsoning Problems June l4

A11 Southern California lumber dealers are invited to an important meeting planned for their special benefit by the Southern California Lumber Seasoning Association at Rodger Young auditorium, Los Angeles, at 7 p.m. on June 14. Following the spot's ahvays excellent prime rib dinner at its reasonable price, the SCLSA rvill condense its business and elect its 1956-57 officers and then turn the session over to the retailers.

The program will be in the form of a panel discussion, with Southland dealers urged to air their questions and any t'gnevances" to the men well grounded in seasoning prob-

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