40 



BUIXETIN 1044, U. S. DEPARTMENT OF AGRICULTUEE. 



ation of a large- volume business on a small margin of profit with 

 rapid turnover. On this basis a lower cost to the consumer would 

 be made possible by a saving in operating costs, plus a saving in 

 net profits, for the dealer could secure a sufficient return from his 

 large volume of business by reduced percentage of net profits. In 

 other words, the dealer could get his net income from many small 

 profits instead of from a few large profits. 



If this plan of operation is to be followed a closer watch of the 

 business must be kept, because any variation in the gross profit ob- 

 tained or in the cost of operation would have a relatively greater 

 effect on net income. For example, two dealers receive the same 

 income from their investment, one doing a business of $35,000 per 

 year on the service plan and taking 4 per cent net profit, while the 

 other does a business of $70,000 under the self -serve plan and takes 

 2 per cent net profit. If in both cases the gross profits fall 1 per 

 cent or the cost of operation increases 1 per cent, measured on net 

 sales, the dealer doing twice the business on half the margin would 

 lose 50 per cent of his profits, while the other dealer would lose only 

 25 per cent of his profits. This is shown in the following tables. 





Percent- 

 age of net 

 profit. 



Sales. 



Net 

 profit. 



Service plan 



4 

 2 



S35,000 

 70,000 



SI, 400 



Self-serve . 



1,400 







If gross profits decrease 1 per cent or cost of operation increases 

 1 per cent : . 





Percent- 

 age of net 

 profit. 



Sales. 



Net 

 profit 



Percent- 

 age of 

 loss 



Service plan 



3 



1 



S35,000 

 70,000 



,$1,050 

 700 



25 



Self-serve 



50 







No particular accounting system is advised and therefore none 

 will be dealt with in detail, except that portion of the ordinary ac- 

 counting necessary to obtain the special information desired. The 

 obtaining of special information is not essential under the self- 

 service plan, because of the self-service aspects, but on the contrary 

 is desirable under any method of business. The matter is mentioned 

 here only because of the particular significance of such informa- 

 tion in connection with operation on a small margin of profit. 



CLASSIFICATION OF EXPENSES. 



In every business, no matter how small or of what nature, suffi- 

 cient records should be kept so that the net profit or loss can be de- 



