Small business retailer advice: analysing shop floor performance can boost profit
This is retail business advice based on decades spent working with and helping local indie retailers across a range of specialty retail channels.
A few minutes analysing your shop floor layout can reveal big opportunities for profit growth. It costs nothing more than a small investment of your time.
That's all this takes, a few minutes.
One retailer we suggested this to made a couple of changes. They added more than $30,000 in gross profit in less than a year. They saw an opportunity they had, until then, completely missed.
Retail space, often called occupancy cost, costs between 11% and 15% of your revenue. That is second only to the cost of stock itself. You might wish the rent was lower. But focusing on optimising your shop floor gives you a much better return on investment.
Retailers benefit from managing shop floor use based on the return they achieve from their floorspace.
How to do it
- Sketch your shop layout on paper, including display units, shelves, counters and storage. Include the back room if you hold stock there.
- Colour code each department.
- On a separate sheet, list each department you have coloured in.
- Calculate the percentage of total floor space used by each department. A ballpark figure is fine.
- Use your POS software to find the gross profit earned by each department over the past year. Or calculate it from your sales figures using your average GP% per department.
- Work out the percentage of total GP contribution for each department, and list it next to the space allocated.
- Circle in green the departments where GP% contribution is higher than space allocation. These are your winners. Circle in red where GP% contribution is lower than space allocation. These need attention.
What you will see
Doing this for the first time often surprises owners. A department can take up a lot of space and still not pull its weight in gross profit. Until you map it, you do not see it.
This advice works for any retailer. Any decent POS software will report GP by department. By mapping that onto your floor plan, you can see the hot and cold spots, where you are making money and where you are losing it.
You can take this further by looking at specific categories within a department using the same method.
We can help
At Tower Systems, we specialise in retail POS software designed to help you analyse your business performance, not just manage sales. In an instant you can get the gross profit contribution we discuss here. Today, AI tools in the software can also explain what your numbers mean in plain language, so the insight comes even faster.
Find out more: www.towersystems.com.au | 1300 662 957 or 0800 444 367 (NZ) |
