Check out the article “Rugs for Designers: Good Profits and Hidden Costs” by PORTE-COCHÈRE’s co-founder in the September 2013 issue of Rug News andDesign (P.22)!
The benefit of selling one-of-a-kind knotted rugs is they are available immediately, no worries the strike off will not be right or a monsoon will delay the arrival. And for a designer there are profits from the sale, and hidden profits in the speed of the project (the faster designers complete a project the sooner they are working on a new one). However, there are also hidden costs to showing rugs and the designers and vendors should respect each others’ investment.
Who really bears the cost of selling a rug? For rug dealers who invest inventory and showroom space, the request to “lend” a quantity of that inventory to Interior Designers may seem like a great bargain for the Designers given no guarantee of sales. When a vendor understands a Designer’s process and gains an appreciation for the cost a designer incurs selling rugs it paves the way to the designer sales channel. Likewise the Designers that demonstrate an appreciation of the lost opportunity for a vendor and return rugs not in play promptly will build strong relationships.
A fruitful partnership can be born between Vendors and Designers. Designers have the trust of their clients and are masterful at selling what they like!
A Designer will consider or show 3 – 5 rugs for every one sold. Often, the designer must keep the rugs in his or her studio while the entire presentation is crafted. This creative process can take many weeks, and large projects can tie up dozens of rugs. Some rugs will be instant rejects, and some will warrant consideration—it’s a fluid process. For designers, a project is an aesthetic puzzle. Having even one rug pulled out by the Vendor during the creative process can set the whole scheme back to the beginning. Yes – lots of inventory is tied up, but it is the way a Designer sells the project while offering clients some choice! And, a designer does more than work hard for the sale; real cash gets invested, too.
The Designer’s Cost
The designer has two major costs: the in and out shipping charges for the rugs, and the insurance to cover the rugs while in their possession.
Designers, who have dozens of rugs coming and going, have to increase their insurance – Note: When the rugs leave the Vendor, they should be “invoiced” to the design firm, not “consigned”. Invoicing allows the design firm to book the rugs against accounts payable, and in the event of a fire or theft, get insurance recovery. At the end of the creative and sales process, the rugs are taken off the books as “Returned to Vendor” and payment is made for the rugs approved by the client. The premium for $100,000.00 of content/inventory has an estimated annual cost of $500.00.
Designers also pay for all freight in and out. A good rule of thumb is $150.00 for each room size rug, and that includes handling in house.
The costs incurred include more than just billable design time. The selected rugs need a margin at sale large enough to cover a fair share of the top line costs leading up to the presentation and leave positive numbers in the firm’s bottom line.
To illustrate the hidden costs, take the following example of a project that needed three room size rugs for a single first floor presentation. The math is simple: three rooms and five rugs a room equals fifteen rugs needed to complete several different combinations and schemes. The designer will likely narrow down choices and perhaps show only six rugs at the presentation. However, the total fifteen options are needed until all the other materials have been secured as available and workable for the project’s parameters.
Fifteen rugs in and out for three rooms is approximately $2,250 in shipping.
The initial fifteen rugs require about 15 square feet of space rolled up, with an additional viewing space of at least 120 square feet.
If the designer’s studio is 1500 square feet, approximately ten percent of the studio space is claimed by rugs in play. If the rugs pay their share of the rent at $10.00 s/f/yr, they are costing the designer $1350.00/year plus the opportunity cost of that space. With 15 rugs always in play, that is about $100 per rug.
The estimated cost of the potential sale for a designer in this example is $3,600.00 invested for the sale of three room size rugs. It is not likely a Designer will do this too often if they are not making the sale!
The Vendor’s Cost
In the same way that a designer has costs, think about the vendor’s costs. Every day a designer holds on to a rug is one day that the vendor does not have that rug for sale to someone else. It is only fair to the vendor to return rugs and samples promptly when you know they will not be used.
The vendor calculates his cost of operations based on the carrying cost of inventory as well as the opportunity cost of lost sales.
With an understanding of this investment, Vendors should look more positively on supplying product to designers for a reasonable length of time and designers should return samples and rugs promptly.
It is in both the Designer’s and Vendor’s best interest to create a stellar presentation that sells product. By working together, both Vendor and Designer profit!