Music Trade Review

OCTOBER
13, 1923
THE
MUSIC TRADE
REVIEW
5
What Is the Overhead Expense Limit
The Average Overhead in the Piano Department of the General Music Store, Based on Returns Made by a
Large Number of Piano Merchants- Review's Investigation Shows Need for a More Uniform System
of Accounting to Handle the Overhead Problem in the Proper Fashion
The average overhead in music merchants'
pia no departments is exceedingly difficult to
determine, largely because of th e wide variety
of accounting sys tem s used by the dealers who
replied to The Review's questionnaire and the
differences between the items reported which
go to make up this charge with the average
merchant. As a result, in striking averages,
the se variations have had to be disregarded in
many cases. The results, however, are close
enough to give an accurate idea of what it costs
to make the average piano sale and sufficient
for any merchant to apply to his own overhead
expense for the purpose of comparison. They
represent a compilation of figures furnished by
seventy-five dealers, among them some of the
lar ges t and most representa tiv e houses in the
trade. The average totals follow:
presented many difficulties . A number of the
questionnaires returned showed no figures at all
for this, the repair department evidently being
compelled to carry the entire burden of this
expense. Tuning and repairs are surely over­
heads that should be charged to the piano -de­
partment. The instrument, when it is received
from the manufactu'rer, needs tuning service, at
least, and polishing. Many houses still give a
certain number of free tunings with a piano or
a certain period of service maintenance as an
inducement for the prospective customer to buy.
To charge th ese obvious selling expenses
against the repair department, from which that
department derives no revenue, is unfair and un­
accurate accounting. Such a method, of course,
reduces the piano department overhead, but it
gives an unaccurate figure and deceives the
Many of those merchan ts reporting made no
charge for this at all. Y et equipment in the
retail warerooms eventually gives out, decora­
tions become dingy and mu st be renewed and
office fixtures do not last forever. Not to make
a charge covering this is to allow a co ns tant
shrinking of assets without having anything to
cover it. The manufa c turer who failed to charge
depreciation on his equipment as a part of his
manufacturing cost would be thought by the av­
erage business man to be a trifle off his balance.
The same is true of the retail merchant. In a
sense, his warerooms is his factory and the
background in which he displays his pianos and
stock is his equipment. There must be a charge
to cover its renewal if the true overhead ex­
pense is to be arrived at.
Financing
Interesting, too, were the returns under the
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heading "Financing and Carrying Trade-in
~
Overhead Expense in the Piano Department
Per Cent ~ Stock." Mo st of the merchants who reported in
',10.50
Salaries
this investigation finance themselves, to a large
extent, or else are in such a position that fhey
COlnmissions ....... . ................................................. .
3.00
can carry their outstandin g retail leases throu g h
Delivery . . .. ......... .. . . .. ................. . ................ . ....... . 4.50
the medium of bank loan s based on their cur­
Repairs and Tuning .. '................ , ..... . ........ . ............ .. ... . 5.02
rent accounts and upon thei r assets as a going
Advertising .......... . . . ............. . ...... . .. ... .... . ......... . " .... . 8.00, i business . Those who do not do business on
Rent, light and heat ............... . . .. ............ . . . ............' ..... .
3.16
this basis in most cases failed to make returns
upon financin g costs, as, obviously, they were
Depreciation .................................................... . .... .
.85
not aware what it cost them either to carry
Financing and carrying trade-in stock
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.31
their own paper or to cash it through the vari­
ous methods they may use. The financing prob­
Grand total of overhead expense .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 36.34
lem in the retail piano trade is one of those
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factor s which make the overhead question so
Each of th ese varying items requires a sepa­
dealer who does it as to his net profit. All jobs
intricate, but to disregard it entirely, as some
rate discu ssion, as most of them reflect vary­
which the repair department does for the piano
dealers seem to do, is to deceive one's self as
ing conditions in the warerooms which report
department should be debited against the latter
to the net profit made and to be utterly unable
them. For instance, take the items of salary
and credited to the former, for this is the only
to figure the proper mark-up in goods that are
way in which an accurate overhead can be ar­
an d commissions. In the returns as made it
not nationally priced at retail.
rived at.
was exceedingly difficult to distinguish between
Charges of extravagance which are usually
Continuing Cost and Overhead
the commissions paid to salesmen regularly a
leveled at the retail piano m e rchant on the
There is another side of this question which
part of the organization and the commissions
score of overhead are not entirely warranted by
should be touched upon lightly here. That is
paid to outside parties for turning in prospects
the average figures brought out by The Re­
the tuning work which is done to an instrument
which were eventually closed. The figures
view's investigation. Of course, it is true that
give n above, howev e r, show this cleavage
before it leaves the wareroom floors. Obvi­
most of the houses repl yi ng are among those
sharply. The percentage credited to salaries in­
ously this is not an overhead, but a continua­
well established and which have been success­
cludes both the straight salaries and the com­
tion of the first cost. It would be good prac­
ful·. But their figures repres ent a fair mean and
tice, obviously, to establish a percentage for
missions paid to salesmen regularly in employ.
th ey are in no mauner too high when the spe­
The item headed "Commissions" includes only
handling based upon the average cost of taking cialty nature of retail piano selling is consid­
the commissions paid to outside parties, so far
care of the instrument while in stock and add
ered. It is not likely that they range any higher
this to the invoice cost, instead of charging
as it has been possible to determine.
than those which are found in reta ili ng other
"Commission Fiend" Going
it to overhead in one case or throwing the en­
lines of merchandise which present a similar
tire burden upon the repair and tuning depart­
One of the striking things that the question­
selling problem and where the usual terms of
ment in the other. Doin g this gives a more ac­
naire brought out was the co mparatively low
payment are upon the instalment basis. The
curate figure for the net profit and throws a
percenta ge of overhead that is to be attributed
trouble with piano retailing is not that too
cost where it should be.
to commis sion s. Only a few years ago 10 per
much money is spent in th e overhead account,
Advertising and Publicity
cent was a well-recognized commission 'i n the
but that in many cases what is spent is not
retail piano trade, and in some cases as high as
The percentage for advertising here includes
spent to best advantage in relation to the re­
all publicity. There is no way of determining
15 or 20 per cent was given. To bring commis­
turns which it produces. In other words, piano
whether it includes extra exploitation work , retailing in many cases falls behind retailing
sions down to 3 per cent shows one of two
things-either the "commission fiend" has been
such as furnishing pianos for local concerts. in other similar fines on the score of intensive­
giving reproducing piano recitals, etc. Obvi­
he avi ly curtailed in his or her activities or else
ness and intelligent dire ction. That is a hard
ously, however, such expense should come un­
the percentage g ive n has heavily fallen off. Both
thing to say, but, for the be nefit of the trade,
der this head. If a piano is delivered to a con­
of these tendencies at the present time are in
a good thing that it is rapidly being remedied
cert hall the charge for delivery should be deb­
operation, man y of the leading retail houses
through the adoption generally of better selling
ited to the advertising account and credited to
giving 5 per cent as a maximum commission to­
methods and a more intelligen1: study of the
the delivery account. (And here it might be
day, with a great many more sales coming
,a les problems.
sa id that the expense of hauling pianos from
through regular sales channels than was the
Need of Uniformity
case in the past. Evidently, the day when a
the railroad freight station to the warerooms,
An average overhead expe nse of 36.34 per
"commission fiend" could list the name of a
which usually the delivery department has to
('ent does not mean, of course, that there are
prospect with every piano dealer in a locality
carry, s hould be charged to the merchandise
no piano dealers who are conducting their warc­
or city and thus be sure of collecting a com­
account, instead of to the delivery department.)
rooms efficiently at a lower percentage. But
Publicity of every kind should come under the
mission has passed to a great extent, a condi­
these are exceptional cases and the cost does
head of advertising and any department which
tion that is greatly to be welcomed, for com­
!lot fall much bel ow thi s figure. V!hel'e ex­
co-operates in .thi s dire ction should be credited
missions for years constituted an unwarranted
tremel y low overhead s are reported the fault
accordingly.
charge upon the piano dealer's volume of sales
u!'oually is that all itcms which legitimately
Depreciation
and contributed to swell the overhead expense
should be charged to overhead have not been
limit beyond what it should be.
One of the most interesting items in the
fi g ured and that the dealer is obviously dueiv­
The item of tuning and repair service also
questionnaires is that headed "Depreciation." . ing himself as to his net profit.
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