My Library and Courses
Last Update: Friday December 15, 2017

Key Idea: Use Numbers to Make Decisions

Bob Orenstein loves wine and the products he sells but as a CPA he knows that he also has to love the numbers and make decisions based upon his financials and key ratios.   More...

Key Question:

A: 

Bob says, "Mail order is statistical analysis and review of numbers. It's all numbers, all, all, all. Sure you need the customer service, you need to buy the products right, you need the accounting, but it's statistical analysis because what you're doing is you're going out and you're rolling that dice each time you do a mailing. There are 300,000 catalogs in a mailing, and your response rates are only 1 percent and 2 percent. If your response rates fall, you could really lose a lot of money."

Q:
  What makes catalog retailing so different from brick and mortar retailing?

A: 
In the small business arena, I think the shop keeper is the person who loves to be with customers and help them select what they want and gift wrap it and then see that same customer regularly. Carol Schroeder of Orange Tree Imports said, "you have to have a mind for the numbers, but in retailing first and foremost you have to love people."

I'm not saying that Bob doesn't love his customers, but the mail order person must be happy thinking about customers in the abstract. And I want to add here that all business, not just mail order, boils down to numbers.

Q: 
What kind of numbers does Bob concern himself with?

A: 
He says, "We look at the percentage of gross dollars that falls to the bottom line. We'd like to keep it well above 10 percent and, of course, we struggle to try to push it to 20 percent. Most businesses are lucky if they can get 4 percent or 5 percent or 6 percent or 7 percent. We try to keep it a lot higher, if at all possible. But really on a daily basis, we look at something called margin per thousand, which is unique to the mail order business. This tells us how many people respond to our catalog in percentages which generally run between 1 percent to 2 percent, closer to 1 percent. And margin per thousand is defined as the profit generated on a thousand pieces of a mail. And we try to keep it in the range of $500 to $1,000 per thousand, which really equates down to 50 cents to $1 profit per catalog mail. That's what we try to do. Traditional mail orders are lucky if they can do 20 cents or 30 cents."

So Bob is producing profits well above those experienced by most other mail order companies. He said part of their great success is that their average order is about $200.

Think about it

How do you use your financial statement to guide your decisions? 

Clip from: International Wine Accessories (IWA) and Bob Orenstein

Dallas, Texas: Meet wine enthusiast, Bob Orenstein; he started his business to serve people who, like himself, love fine wine. But, it was not easy. Learn how perseverance paid off. Slowly his company served hundreds of thousands of customers around the world. He  became the  authority on wine accessories and his customers began to depend on him to find items they could not find elsewhere.

From a spare bedroom of his condominium in 1983, it took him over ten years to break into the domain of the fast-growing businesses. He talks about business basics -- delivering quality products and extraordinary service.

Go to all the Key Ideas and Video for this episode...
Go to the homepage for this episode of the show...

International Wine Accessories, Inc. (IWA)

Robert Orenstein, founder

10246 Miller Road
Dallas, TX 75238
2143496097

Visit our web site: http://www.iwawine.com/

Office: 2143496097

Business Classification:
Home products

Year Founded: 1988

Use Numbers to Make Decisions

HATTIE: So do you have some quick ratios, some measurements that you're looking at on a daily, weekly, monthly basis, Bob?

BOB: Yes. Being an accountant, I look at all the traditional ratios, although we don't worry 'cause we have no debt, so we don't look at those things, and we have plenty of cash. So we do look at ratios, but the ratios we look at are basically gross margins. We look at the percentage of gross dollars that falls to the bottom line. We'd like to keep it well above 10 percent and, of course, we struggle to try to push it to 20 percent. Most businesses are lucky if they can get 4 percent or 5 percent or 6 percent or 7 percent. We try to keep it a lot higher, if at all possible. But really on a daily basis, we look at something called margin per thousand, which is unique to the mail-order business. And basically what that says is on a daily basis, we look at our response rates--how many people respond to our catalog in percentages, which generally run between 1 percent to 2 percent, closer to 1 percent, and then we look at margin per thousand. And margin per thousand is defined as the profit generated on a thousand pieces of a mailing, how much money do you make? And we try to keep it in the range of $500 to $1,000 per thousand, which really equates down to 50 cents to $1 profit per catalog mail. That's what we try to do. Traditional mail orders are lucky if they can do 20 cents or 30 cents.

HATTIE: So you're way above.

BOB: We're way above. And the reason we're way above is 'cause our average order is well over $200, our margins are--our wine cellars are very tight, but on smaller items, are reasonably high, so that we're able to produce those margins.

I mean, what it all boils down to, a lot of people don't realize this, but mail order, when you really get down to it--I mean, you go in and you interview a CEO who's, you know, a former salesman or an engineer and all that, they have no idea what they're doing, because what is mail order? Mail order is statistical analysis and review of numbers. It's all numbers, all, all, all. Sure, you need the customer service, you need to buy the products right, you need the accounting, but it's statistical analysis, because what you're doing is you're going out and you're rolling that dice each time you do a mailing and you're mailing out 200,000 catalogs. There are 300,000 catalogs in a mailing, and your response rates are only 1 percent and 2 percent. If your response rates fall, you could really lose a lot of money.

HATTIE: Bob says you can't just increase sales to improve your business, you have to pay attention to the cost of doing business. His favorite ratio is gross sales per 1,000 pieces of mail dropped. By paying attention to this number, he has increased IWA's return on investment, and it is two to three times better than other direct-mail companies. Paying attention to small details can bring big results.

Not a member yet? Learn!  Be empowered! Join us!