Profit margins: Rightline Gear owner Loran Evans applies basic principles (and math) to decisions about such business challenges as product development and cash flow. photo by Sue Evans
Dealing with money is obviously an inherent part of running a business. And as any business owner knows all too well, two of the trickiest concepts to nail down are cash flow and pricing. So we decided to check in with one of our clients whose business presents fairly complex money challenges to see how he approaches them.
Loran Evans is the owner of Rightline Gear, a brand of car top carriers and truck tents that are sold by more than two dozen national dealers and online retailers including Amazon, Target, Walmart, Cabela’s, and Sportsman’s Warehouse.
Mountain BizWorks: The products designed by Rightline are produced in factories overseas. Since you have to pay for and import the items before you make your sales, how do you determine how much inventory to order?
Loran Evans: I have an inventory forecast spreadsheet that looks forward about a year. Then I populate it by making educated guesses about what we’ll sell each month based on past performance trends and expected new customers. It usually turns out to be pretty accurate. Each shipment of new product takes a minimum of 90 days from order to arrival, so we have to plan those shipments way ahead of time to match up with the need.
Mountain BizWorks: How do you figure out how to price the gear to cover all of the costs and include a profit margin?
Loran Evans: We work backwards. We start with setting a retail price that’s competitive, then we take into consideration all of the production costs, the dealer’s margin, the distributor’s margin, and our profit margin. If the profit margin turns out to be too small, we either scrap the product or redesign it to use different materials or to remove some product perks (stuff bags, sewn-in set-up guides, etc.).
Mountain BizWorks: How have you used financing or investors to help with cash flow?
Loran Evans: We have received financing for inventory from Mountain BizWorks and Advantage West, and it’s been a tremendous help. Back in 2008 we were able to get financing from our bank, but since the economic collapse, no way. We haven’t encouraged investors because when a small business takes on investors, you end up giving away a big chunk of equity for a small number of dollars. I think it’s important for small businesses to think through financing up front and have a plan until your business is worth more – then when you bring on an investor, you get more money for the same equity.
Mountain BizWorks: You’ve managed to grow your business throughout the recession; it grew by 60% last year alone. How did you do it?
Loran Evans: Due to the recession, I think folks out there are taking more vacations by car instead of airplane. In addition, vehicle camping is becoming more popular for people who don’t want to sleep on the ground – it’s more comfortable, and you avoid critters and rain. And within that industry, we’re really good; we’re creating unique and innovative products, so we’re gaining market share.
To shop for truck/SUV tents and car top carriers, visit www.rightlinegear.com.
If your business is facing money challenges, register for Mountain BizWorks’ upcoming Money Course: Growing Revenues, Ensuring Profitability, and Preserving Cash. This four-session course starts Nov 29th from 3-5:30 pm at 153 S. Lexington Avenue in Asheville. To register, contact Bob Dunn at 828-253-2834 ext. 17 or firstname.lastname@example.org.
To learn more about small business loans from Mountain BizWorks, visit mountainbizworks.org/lending or call 828-253-2834.
Anna Raddatz is development and communications coordinator at Mountain BizWorks.