The Tenants Edge

How Does a Retailer Make Money? Common Mistake Number One

System Admin - Sunday, January 22, 2012

One of the most common mistakes I see with small retailers is the failure to analyze sales revenue.  They may know top line sales and bottom line profits, but don’t take the time to understand the exact composition of sales.  Are you selling to new or existing customers?  Do you sell more of item A or Item Z or items A and Z together?  What is the average sale or sale per employee?

Ask the typical small store owner if they track Key Performance Indicators (KPI’s-see list below) and they answer, “It’s all in my head.”  With this tracking method, you're probably missing out on some extremely important -and easy- ways to increase revenue.

KPI’s provide POWERFUL insight that can help determine targeted marketing solutions, pricing strategies, hiring needs, new revenue opportunities and a host of other strategies that can result in increased revenue and decreased expenses.

KPI’s are easy to track with point of sale software by simply inputting correct and detailed information for each customer and learning to pull the appropriate reports daily, weekly and monthly. I find many retailers don’t take the time to learn the capabilities of these systems . For those retailers that don’t have a POS system, I recommend tracking sales manually to get a grasp on the when/what of sales.  It takes some effort but can pay off big in the long run.

How can KPI’s help grow business? Here are just a few examples:

Average Sale/Sale by Category
I worked with a coffee shop that needed to increase revenues by 10 percent which represented an increase in sales of about $2000 per month. She was going to invest $6000 in advertising to increase traffic  to achieve her revenue goal. By knowing her average sale, which was $3.95, we were able to bundle two items as a special at $ 4.75. Just by upselling her regular customers, she was able to increase revenues without spending a dime or giving up any profitability.

Sales by Day of Week/Daypart
By knowing when you are selling (or not selling) you can create a strategy to improve business during peak and non-peak times.  For example, a pizza restaurant offered a daily lunch discount each weekday  Upon  analyzing his day/daypart numbers, we found that Thursday and Friday lunches were triple the volume of Monday through Wednesday. Since business was so good later inthe week, there was no need to continue offering a discount on those days. The owner was able to increase profits during the peak sales days and offer steeper discounts to lure customers during the off days.

New vs. existing clients
A beauty salon client did not track new vs. existing clients or client retention. Once they analyzed their numbers, it was clear they were getting plenty of new clients; they just weren’t retaining them. By understanding that, they were able to implement a two-fold strategy that included customer service training for the stylists to insure greater customer satisfaction- and ultimately their return -as well as a new customer welcome program that offered new clients discounts for pre-booking their next appointment.

Customer profile/demos
Take the simplest customer demo – the zip code. I recently worked with a franchisee for whom the franchisor did a quarterly mailing. In comparing the zip codes of the mailing to the actual client zip codes, we saw that the franchisor mailing list did not match the current client base. Armed with this information,  the client was able to inform the franchisor so they could create a more geographically accurate mailing list and thus, better results from the marketing dollars spent.

These are just a few examples of how understanding the nuances of revenue can help a small business owner create better – and sometimes very easy – strategies to grow business.

Key Performance Indicators
While not all are applicable to each business, here’s a list:
                Sales per employee
                New clients per week vs. repeat clients
                Sales per square foot
                Average check
                Sales by category
                Merchandise vs. service
                Lead sources
                Sales by day of week/day part
                Sales conversion rates
                Customer profile

 



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