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Small Business Center

How Does Your Store Make Money?

August 1, 2023

By Angel Cicerone, Tenant Mentorship

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, and they answer: “It’s all in my head.” With this tracking method, they’re probably missing out on some extremely important and easy ways to increase revenue.

KPIs 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.

KPIs are easy to track with point-of-sale software by simply inputting correct and detailed information 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.

How can KPIs 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%, which represented an increase in sales of about $2,000 per month. The owner was going to invest $6,000 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 revenue without spending a dime or giving up any profitability.

A pancake house offered an extensive breakfast menu. It knew that pancakes were, by far, its most profitable item. Meats generated the least profit. They had never pulled an itemized sales report and upon doing so, made an amazing discovery. Guess what they sold least? Pancakes. The most? Meats! That made it easy for us to create pancake-focused promotions and samplings. We also raised prices on sides of bacon, sausage and ham to keep in line with escalating costs. In no time at all, pancake sales were soaring, as was net profitability.

In another example, a clothing store’s sales declined by over 40%. The owner had never pulled a sale-by- category report, and when she did, it revealed most of the decline was in sales of dresses. It was like a lightning bolt hit! She had dropped two dress lines the previous quarter and never checked to see how that impacted her sales.

Sales by Day of Week/Part of Day

By knowing when you are selling or not selling, you can create a strategy to improve business during peak and nonpeak times. For example, a pizza restaurant offered a daily lunch discount each weekday. Upon analyzing his day/part of day numbers, we found that Thursday and Friday lunches were triple the volume of Monday through Wednesday. Since business was so good later in the 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.

A clothing store, upon tracking sales by time of day, realized the restaurant next door was throwing off great after-dinner traffic. The clothing store began staying open later to benefit from restaurant traffic and opening later to avoid labor costs during virtually nonproductive morning hours. Sales, of course, went up.

Sales by Employee

One clothing store’s sales had been steadily declining over a year’s time. The owner was frequently absent and left the store in the hands of her manager, who was also the primary salesperson. In researching the sales decline, she pulled the sales-by-employee report. Her manager’s sales had gone down 47% year over year! Frighteningly, the owner didn’t know this. Clearly, the manager had become complacent and lost interest. The owner was able to fix the situation by better motivating and training her manager, giving her goals and incentives to sell more and keeping a closer eye on her. The manager’s sales rose 25% in just 90 days.

New Versus Existing Clients

A beauty salon client did not track new versus existing clients or client retention. Once it analyzed its numbers, it was clear it was getting plenty of new clients; it just wasn’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 customers’ return, as well as a new-customer welcome program that offered new clients discounts for pre-booking their next appointments.

Customer Profile/Demographics

Take the simplest customer demographic, 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 versus repeat clients
  • sales per square foot
  • average check
  • sales by category
  • merchandise versus service
  • lead sources
  • sales by day of week/part of day
  • sales conversion rates
  • customer profile

Which work for you? Start tracking them today. By knowing exactly what and when you’re selling or not selling, you can create strategies to improve business during nonpeak times, know when to run promotions and when to schedule employees, resulting in better service, better profitability and potentially decreased labor costs.

Small Business Center

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