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A Systematic Approach to Running a Small Furniture Operation: How I Use A.M.O.R.I.

13. September 2019 11:35

By: John Lindsay, New Breed Furniture LLC

 Here's a quick review of the management system acronym that I have been featuring in this blog: A.M.O.R.I. 
As readers who have been following me so far know, I find this home-grown, five-part business organizational tool essential in managing my growing wood manufacturing business. The system is called "A.M.O.R.I." - A is for administration, M is for marketing and sales, O is for operations, R is for research and development, and I is for Investments and Intellectual Property.

In the next series of five blogs, we'll run through an update on of how New Breed Furniture’s current business development projects fit under this system, one letter at a time. Hopefully, you will find some insights into the AMORI system through these concrete examples showing how the system plays out in a real-world woodworking business. And maybe some of these specific ideas could even work for your company. 

So let's start with A for Administration, and look at the development of New Breed Furniture's Discount Policy for Volume Purchases.

A - Discount Policy

When New Breed first broke into the furniture world, we were a very small fish in a large and red ocean. More on red and blue oceans later (see Blue Ocean Strategy by W Chan Kim and Renee Mauborgne, published by Harvard Business Review), but let’s just say there was and still is a lot of competition, which we were and are ready for.

What we weren’t ready for and aware of was the vast network of middlemen/women we would have to cater to. What we had to master was our wholesale and retail pricing.

If we wanted to place our brand new New Breed Furniture into high-quality chic furniture stores, we would have to be good little wholesalers and offer our work at 40%-50% off (sometimes as much as 55% off for floor models) the final sale price (M.S.R.P.). So we did it for the first few years, always at a loss because the orders were always small.

We believed, rightly so, that this was key to getting our products out in front of the right people, helping us to gain traction as a brand, opening other doors in hospitality and commercial commissions. In short, I wouldn’t do anything different, and that includes eventually doing everything differently when I decided to pull focus away from our original wholesale offerings and launch our own online store.

This second phase allows us to keep our prices down for the end user while increasing our RPT (revenues per transaction). So, now the name of the game is crafting the right discount policy, one that incentivizes the right kind of customers while protecting our RPT. The truth is that we just don’t have that much of a discount to offer, maxing out at a third off MSRP, rather than 50%, 

for the rare client that can deliver massive annual sales. Our new strategy is to go after direct sales, leaving the middlemen/women behind.

So here’s New Breed Furniture’s new discounting policy: a long list of the New Breed family, including repeat customers, designers, a  few supportive retailers, industry professionals, and makers will be issued their own representative code, that when used will offer a two-fold discount/credit, starting at 8%-16%, in which the user of the code gets an immediate 8% discount, while the representative get the same amount in future credit.

This percentage increases with the amount of purchases made under any given representative. Now, for example, if a client like our beloved repeat customer Cortney Bishop Design places the order themselves, using her own representative code, then she gets to enjoy both the discount and the credit for future purchases, making for a more conventional wholesale experience, but not quite totally the same. 

Level annual sales discount

  1.  $0-$24 →8%-16%
  2.  $24G →9%-18%
  3.  $48G →10%-20%
  4. $96G →11%-22%
  5. $192G →12%-24%
  6. $384G →13%-26% 
  7. $768G →14%-28% 
  8. $1,536G →15%-30% 
  9. $3,072G →16%-32%

Next time we'll look at the M in AMORI, Marketing and Sales - and talk about New Breed Furniture's approach to coupon design and distribution. 

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