Have you ever wondered if what you know about Retailing is accurate? Consider the following paragraphs and compare what you know to the latest info on Retailing.
Secret #1 Retailing is a exciting, liquid art form, not a cut & dried science!
However, there are 3 objectives that are cut in stone at all times!
Objective #1. Get the money!
Objective #2. Get the money!
Objective #3. Get the money!
Your mission is to separate your customers from their money - on the spot. That means at the first opportunity, not the second or third chance that might never come. How do we do this? What's the secret?
Simple, make them an offer they can't refuse!
Retailing is a lot like baseball. All the coach is concerned about is getting all his players to first base. (He doesn't tell them to swing for the fences and try to hit a home run).
How does this translate to retailing? Go for the quick/easy sales, go for the volume, not the high prices. A common mistake for newcomers to the business is that they think they're supposed to double or triple their cost on everything. If Sam Walton thought this way, people never would have heard of WalMart. Very few realize that if they pay $7, they're better off selling it for $12 each or 2 for $20, capturing new customers & CASH.
Cash is king, and the retailer must convert to cash at every opportunity. Live each retailing day like it is your last! The benefits of cash flow are too numerous to mention here, but the consumer must see new merchandise everytime they come into the store. Forget about percentages, margins, and markup, and collect as many profit dollars as possible in one day - everyday!
Believe it or not, it's even OK to sell below cost when necessary. Nobody can make a profit on every item, everyday - Sears can't do it, Penny's can't do it, we can't do it, and you can't do it, but that's OK - it's the big picture that counts, get a growing customer base and make them offers they can't refuse!
Always remember, CASH IS KING! Always, always, always get the cash -- NOW!!!
Secret# 2 Look at your profit picture as a group of items coming from each supplier rather than individual items coming from that supplier.
In other words, focus on how much money you have already made on that order that came in, rather than focusing on the items that are left over and haven't sold. Sell off those remaining items at any price because at this point they are 100% profit! So if 60% of the merchandise sold itself and paid for the whole order, sell the other 40% at any price necessary to get that remaining 100% profit money in your pocket as fast as possible.
Your bank account doesn't care if the dollars in came from merchandise sold at a profit or at cost or at below cost. Again, all we care about is collecting as many dollars as possible each and every day.
It doesn't make any difference if some items in a shipment don't sell and we actually throw them away (donate to charity and take a tax write off), as long as, WE MADE OUR PROFIT ON THE STUFF THAT DID SELL!
P.S. - you might change your mind about which suppliers are really giving the best deals!
Secret #3 The Lease Trap
How do you spell "lease"?
I spell it "L-A-W-Y-E-R-S"!
Many entrepreneurs make a nice profit until they sign a lease and are then obligated by the terms of that lease. Paying rent is not recommended if your business can operate for free - out of your house, car, selling on the job, house parties, consignment, fundraisers, street fairs, etc.
If rent must be paid, a month to month agreement is recommended. If a lease must be signed, get a lawyer on your team first - tell your lawyer you want some kind of an "out" clause - before you sign!
Secret #4 Taking a booth at the local fund raiser (church, school, etc) usually pays off big time! Buyers love to support the event & go there to spend money. Booths are cheap? 10% of sales or very low rent, check 'em out! When you're there, make sure to network with other exhibitors and find out about other events, street fairs, etc.
Secret #5 "I just got ripped off"! How do you handle it?
Answer - Amortize it! Always look at the big picture.
Say you lost $300 today - well that doesn't mean you're going to loose $300 every day. Take that $300 loss and decide how many more years you're going to be in business. Let's say your answer is 10 more years - well that means you're going to make $30 per year less for the next 10 years. The big picture says you loss $300 at the end of being in business 10 years later! Not bad at all now.
We already know ahead of time that we're going to have good days and bad days, so when a bad day comes along, don't let it ruin your whole day because we already knew that a bad day is going to come along now an then. Keep your personal emotions, especially fear, out of your business.
Always do the right thing in the next 5 minutes, have faith, truly believe everything's going to be ok, and sleep good at night, or, if you can't do that, consider getting out of the business.
Sometimes the most important aspects of a subject are not immediately obvious. Keep reading to get the complete picture.
Secret #6 - What's the single biggest reason a business will fail?
Answer - Undercapitalization. In simple words - not enough money for the scale of operation. (The second reason for failure is not enough experience, but with "enough" money behind you, most people can learn to survive.)
How much money is enough? That depends on the expenses involved. It's obvious that less money is needed for a flea market than for a retail store, but what's not so obvious?
Let's talk about a major ingredient - inventory. Does the appearance of your inventory make you look like an amateur or a pro? Customers don't like to give their money to an operation that looks like it may not be there tomorrow, instead, they're happy to give their money to a successful operation that will be around for many more years to come.
Translation - have the faith & the good sense to give yourself the best odds at winning, not the worst! Make a 110% commitment to yourself and absolutely jam pack your business with as much selection/inventory as you can possibly afford (even borrow) to maximize the odds of having the selection & professional appearance to make a sale!
Some people think they're being smart with minimal inventory purchases/displays, I think they're cutting their own throat! We see it all the time - minimal orders bring back minimal results! HOW COULD IT BE OTHERWISE? Put your money into inventory/bigger selection, where it can give you a return of 30% plus per week instead of letting it sit in the bank earning 2% per year!
Secret #7 - What about taking advantage of discounts, should they be taken or should I hold on to my money?
Discounts are a HUGE factor! Yes, positively, absolutely, of course, si, aqui, for sure, no doubt, always, always, always go for discounts, did I forget to say YES?
There are two ways to make money in retailing. One way is when you sell something. The other way is when you buy something. Buying enough to qualify for a discount is the same thing as putting that discount money in your pocket, and your pocket is where that money is supposed to be!!!
Only FEAR of not selling that product stops the retailer from buying larger quantities and coming from fear will not lead to making good business decisions. In reality, when the buying cost is lowered, the selling price is substantially lowered, driving sales up beyond the beginners expectations.
Put the right shoe on the right foot - focusing (without fear) on buying at the best price is more important than focusing on the selling price because the cost will determine the risk factor and the selling price possibilities.
Secret #8 - How do you figure out a "break even"?
Very few people in business know how to figure out what their break even point is, or what it will be when they open their business - a big, big mistake because the break even is the foundation that determines a risk and profit basis! Don't try to build your business without understanding your foundation first.
Let's start with a very simple break even proposition. Judy is considering selling earrings at the local swapmeet. Let's say she buys earrings from her distributor at an average cost of $.30 cents each and she plans on selling them for $1, and her only fixed business expense is the rent of $28 per day.
How many earrings must Judy sell to break even? Well out of each dollar brought in, .30 cents is the cost of product/earrings and .70 cents is left over which is the gross profit, which is used to pay the rent - so how many units of .70 cents are needed to pay the rent? Simply divide the rent of $28 by .70 cents which equals 40 units. So 40 pair of earrings must be sold in 8 hours at only $1 each to pay the cost of the product and rent. 40 pair divided by 8 hours is only 5 pair or $5 per hour income. Judy is now relieved to know that she should have no trouble at all breaking even.
How much profit can Judy make for herself? Well Judy thinks that with the $1 selling price she might sell 50 pair of earrings per hour, that's 400 pair per 8 hour day. We just learned that Judy's break even is 40 pair of earrings, so that means that the other 360 pair (400 minus 40) is all profit after we subtract the cost of product. So subtracting the .30 cents cost, leaves .70 cents profit X 360 pair = $252 pure net profit in Judy's pocket! Judy likes this information very much. She figures that even if her estimate is only 50% correct, she'll still do nicely.
Well over the past several months Judy has done quite well at the swapmeet, she expanded her product line into all kinds of costume jewelry and accessories, and is now considering expansion by opening a retail store in the mall with 1 or 2 employees, open 7 days a week (she plans to keep her business going at the swapmeet). But Judy is a smart business person because she wants to know ahead of time what her break even will be? ...She wants to know if she has a chance to make a lot of money? ....Or is the deck stacked against her and she'll lose a lot of money?
How does Judy figure out a break even for a retail store with different kinds of expenses and cost variables?
Judy needs to arrive at a sales volume figure needed to pay all the bills, so first she carefully adds up ALL the fixed expenses. She did NOT include "one time" expenses required to get the store open as these will be amortized over a long period of time.
Judy multiplied all monthly expenses by 12 months/year, and added these to all weekly expenses which she had multiplied by 52 weeks/year. Suggestion - add: the LEAST amount one must get out of the business for oneself; add $100 per week for misc; add 15% to payroll; add $100 per week for pilferage; etc.) Now she divided ALL the expenses by 52 weeks, and divided again by the number of days of operation. This is the DAILY fixed cost of operation. Let's say this comes to $300 per day.
How much does Judy have to sell to break even? Well it's not all profit is it. How much out each dollar is gross profit? If Judy pays $6.50 for an item and sells it for $9.99, her margin of profit is 35%. If 35% is her overall gross profit for all items sold, divide the daily fixed expenses by .35 to determine how much must be sold to "break even". So, $300 divided by .35 = $857, or round off to the higher cost of $900 per day is the answer!
If the business is open 10 hours per day, divide $900 by 10 hours = $90 per hour break even. Does Judy think it can bring in $90 each hour on the average? If she thinks not, she shouldn't open that business. If she thinks it's no problem, let's take a look at the potential of that business.
Based on traffic, product selection, pricing and other considerations, Judy "guestimates" it can bring in $200 an hour on average, so how much money can she make? Well we know that the first $90 sold per hour is needed to break even, so that means there is $110 brought in past the break even point at 35% profit - so $110 X .35 = $38.50 profit per hour X 10 hours per day = $385 per day profit for Judy before amortization of her one time store opening expenses and personal taxes.
Judy is feeling really good about the numbers. She now knows that if her "guesstimate" is off by as much as 50%, she's still ok because she's still breaking even, and as a bonus, she also knows that her margin of profit with costume jewelry purchased from her distribution contracts gives her a much, much wider profit margin than 35%!
Secret #9 - Can you name a little known business that can net you over $50/hour and you can work as many flexible hours as you choose? Hints: there's no selling, no employees, no rent or overhead, no mlm or networking, no house parties.
..To be continued...
Your comments are appreciated.
Copyright (c) Ronald T. Brooks, BS, JD 2006
Profits4u2 - Lerarning Center
Ronald Terre Brooks is a retired lawyer, qialified MCSE, programmer and internationally known entertainer. He is currently living on the Costa del Sol and operates several websites. His learning Center website teaches Internet Marketing and WebMaster skills to "newbie" and Professionals alike. It is a membership site, but there is a free "Gold" membership category where basic skills can be obtained by anyone. To visit or join:
http://www.Profits4u2.com.
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