Retail Metrics: Knowing Your Numbers
The top business retail metrics and why you should track them.
When you opened your store, you had a dream. A dream to create something wonderful for your customers, the perfect destination for them to find their perfect 'something' and for you to live a fulfilled life where work was enjoyable.
I’m certain you didn’t fall in love with the idea of understanding profit margins, corporation tax and VAT, however.
But to run a successful—and more importantly profitable—business, it is vital you have at least a grasp on the key numbers, otherwise, you will not know whether all your hard work is worth it!
This article is not going to be about what is and isn’t allowable against tax, directors loans or dividends, that is what your accountant is for. The retail metrics in this article will be the numbers that you can track, the numbers that will enable you to drive your business forward.
When I start working with a new client, one of my first questions to them is ‘which key numbers do you track each week?’
It is rare that any of them track any of their numbers, but it is so important. It gives you back control, allowing you to spot trends, focus attention on key areas and head off any potential issues before they become unmanageable. The retail sector is hard work, physically demanding, emotionally exhausting and like riding the world’s biggest rollercoaster that you can’t get off…and so you must make it pay to make it worth it.
So which key numbers should you focus on? Well, there are so many, but I would suggest initially focusing on just four. This will get you off to a great start and help you drive your business in the right direction.
YOUR GAP - GETTING THE LIFE YOU WANT
First of all, you need to find your gap. This is the difference between the wage you are paying yourself right now, and the wage you would like to be able to pay yourself. It will become your goal, and without it you are essentially sacrificing your work life balance for very little in return. It is a common problem amongst bridal retailers. Many of them don’t pay themselves even close to minimum wage!
Ask yourself how much your hourly rate is, and if would you be able to employ someone amazing in your business for the same wage. If not…then what do you need to earn to give you the life you want? Add the difference between your current wage and your ‘dream’ wage to your fixed costs, what you spent on salaries and marketing and other overheads in your last year, and this will tell you how much your store needs to take to give you the life you want.
GROSS MARGIN
In most stores who mark up using the ‘times 3’ model, the gross margin (otherwise known as profit) will be a little under 60%.
It is important to point out here that you should always aim to achieve at least a 3 times mark-up (more if possible), and only consider less when you are selling a high value item as your gross profit will be higher, e.g:
Wholesale price £300 x 3 = Retail price £900 = Gross Profit £600
Wholesale price £700 x 2.5 = Retail Price £1750 = Gross Profit £1050
Clearly the 2nd option makes more sense financially, but it doesn’t necessarily mean your business will succeed. In most cases, stores will need a mix of price points in order to command the greatest market share. As a rule of thumb, aiming for a 3 times mark-up should give you a stable business model.
AVERAGE SPEND
Knowing your average customer spend is key—don’t just guess it!
Count the number of sales you have made in a set time frame and the total this comes to. Divide this total by the number of sales in the same time frame, and you will have your average spend.
By understanding your gross margin, your average spend and your gap, you can work out exactly how many sales you need to make in a year to give you the salary you want—all that from just 3 easy numbers.
