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David Brown

5 KPIs You Need to Start Checking Monthly

Measure these five figures each month to ensure peak salesperson performance, stock trends and more.

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IN THE JUNE AND JULY ISSUES, we covered the most important numbers you should be monitoring daily and weekly with your business. As valuable as those are, some figures require a longer-term view in order to see how your business is trending and in which areas you need to concentrate your efforts.

Monthly numbers tend not to lie, so this is where you should spend the biggest part of your business analysis. 

Here are five of the most important number-crunching exercises you should be doing on a monthly basis.

1 Comparing monthly versus weekly trends. Your daily and weekly analysis will have given you a heads-up on areas of performance. You now need to compare it to the monthly performance. Did your trend in week two translate into a continuation overall? If your weekly trend is becoming a monthly one, you need to review the action you have taken or put a strategy in place to address it if one doesn’t exist yet.

2 Financial reports/budget. Monthly financial reporting used to be an onerous and expensive task for businesses. With modern computing power and a large selection of online accounting software available, it’s now easy to determine your monthly store profitability. Once your month has ended, you need to compare your actual performance to budgeted projections. How did your expenses measure up, particularly as a percentage of sales? What was cash flow like?

3 Stock imbalance. Inventory can easily get out of alignment without you even realizing it. A stock imbalance report will allow you to see the price points where sales are happening and whether you have sufficient product in that price point to meet demand.

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4 Salesperson performance. Your sales staff are the key to your sales performance. This is the time to review their efforts against targets and also to assess who provides the best return on sales for dollars spent in wages and hours they have worked.

5 Conversion rate. Are your browsers being turned into buyers? Your conversion rate data is one of your most important metrics. This is also a good measure of marketing spend as you can review foot traffic against your marketing investment to determine a cost per visitor achieved.

If your month has become a little busy and you haven’t spent the time on the daily and weekly performance measures you would like, then make sure you don’t neglect the monthly exercise of reviewing your key performance metrics. An hour a month spent in this area can be one of the most valuable uses of your time.

David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports, contact inquiries@edgeretailacademy.com or phone toll free (877) 569-8657.

David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at david@edgeretailacademy.com

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David Brown

Here’s How to Make Debt Work for You, Not Against You

These are the three main factors to consider when taking on debt.

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DEBT IS OFTEN a part of business that can’t be avoided. When used wisely, it can be a catalyst for business growth. When used unwisely, it can be the undoing of a business. How you use it can make or break your store’s performance, yet many business owners fail to understand debt fully and the impact, both positive and negative, that it might have.

There are a number of factors you should consider when deciding to leverage your business. Here are five important things to consider.

Invest in Assets That Increase or Provide Positive Cash Flow

Debt comes at a cost, and that cost needs to be offset by a source of income. If you invest your loans in assets that can either increase in value or provide income in excess of the servicing costs, then you are ensuring your debt is a positive generator for your business.

Separate Business from Personal

Using business debt for private purposes can lead to long-term cash flow issues. This is a continuation from point one. If you load the business with debt to fund a holiday home, then you need to ensure other parts of the business are strong enough to meet the extra cost, as the asset itself will not be providing cash flow (unless you choose to rent it out).

Don’t Overextend

Deciding to take on debt is the first question, deciding how much to take on is just as crucial. Assess the risks of your investment losing money, the equipment you buy dropping in value, or that the income from your investment won’t create enough cash flow to meet the debt obligations. Your income returns can be uncertain; your debt obligations are often set in concrete.

Structure Correctly

How you set up your debt can affect the long-term cost, not only in terms of what you may have to pay back, but whether you can enjoy a tax benefit from the IRS. It’s important to get good advice before organizing your loan.

Consider the Security Offered

Banks will always seek as much security as they can. In a perfect banking world, they will want everything you own to underwrite the loan, including your firstborn! You need to be comfortable with what you will give and how forfeiting security will affect future decisions, including getting additional funding later.

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David Brown

Maybe You Don’t Need to Sell More Jewelry After All

How to balance the competing goals of raising sales volume and increasing your margin.

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AS DECEMBER APPROACHED, most jewelers were looking for some positive momentum in the lead-up.

Our November store data showed a slight increase in the right direction, with store comparative sales for the 12 months ending November 2019 showing an increase of 1.2% versus the same period a year prior. This might not be a figure that sets the world on fire, but given some of the recent stutters in results during 2019, it served as a promise of what might be to come.

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Sales of $1.921 million were up $22,000 from 2019’s $1.899 million, and over $90,000 up from the 2017 figure of $1.829 million. Sales units of 5,957 were down 7% on 2018’s 6,376 items sold for the rolling 12-month period, with average retail price per item increasing 8% to $322 from $298. Markup held its own at 85%, resulting in the average store seeing gross profit rise 1.4% from $872,000 to $884,000.

As we often discuss, growing your profitability can be something of a juggling act between maximizing your margins and increasing the volume of sales you make. Improving your bottom line can seem like an “and/or” argument – if I increase my price will my sales volume go down or stay the same? If I lower my price will the sales volume go up or will it make no difference? At the extremes the answer is usually yes – a 50% increase in price is almost certain to reduce the number of sales you make. Likewise cutting your prices by 50% should increase quantities sold. The question however is will it be enough to make a difference? In many of these scenarios the increase in the positive aspect may not be enough to counter what you have lost at the other end.

Let’s look at the scenario of choosing between an increase of 1% in prices versus a 1% increase in volume. It’s important to understand they don’t both have the same impact on profitability as we’ll demonstrate with the scenario below.

Jane runs a profitable jewelry store with the following numbers:

Fixed costs per annum: $250,000 (rent, salaries etc.)
Variable costs: $65 per unit (freight, commissions, goods purchased, etc.)
Sales: $1 million
Volume = 10,000 units

The scenario above would result in a profit of $100,000.

Raising Volume by 1%

Now let’s say she increases the volume by 1%. The fixed costs would remain constant, but her total variable costs would go up to $656,500 due to the extra expense of selling the additional items.

Sales would be $1.01 million, which is the same as raising the price by 1% and holding the volume steady. By raising the volume by 1%, Jane would increase her profits by $3,500 or a 3.5% increase in profit.

Raising Price by 1%

What would happen if she raised the price by 1% instead while maintaining the current sales volume?

Sales would still be $1.01 million, an increase of $10,000. At this level the variable costs would remain constant ($650,000) because we just raised the price per unit and didn’t have to buy or sell more items.

Fixed costs would also remain the same. This would result in an increase in profit of $10,000 – a 10% increase in profit, a figure that is $6,500 better than just increasing sales volume by 1%.

So, if you’re weighing up a strategy to build your business profitability, it’s important to know that not all methods work the same. Given this information, it may be better to concentrate on a plan that increases margins while maintaining sales volume rather than looking to build volumes at the expense of margin.

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David Brown

How the Power of Compounding Returns Can Make You Very Wealthy

Start early and continue to reinvest.

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ALBERT EINSTEIN CALLED it the 8th Wonder of the World — and it’s been a source of wealth building for many of the world’s richest people. And yet, the power of compounding interest is still one of the most misunderstood concepts in business and investment.

The power of compounding applies to business ownership just as surely as it does to investment decisions. Investors like Warren Buffett have built their fortune on businesses that offer a strong return on investment that can then be reinvested back into those businesses, or other businesses, that can continue to deliver similar returns. Compounding has allowed him to build an initial capital of less than $1 million back in the 1950s into a fortune of over $70 billion today.

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So how does it work? Well, I’m sure you’re aware of the leverage that can be achieved by reinvesting your returns to create still larger returns. What many people underestimate, however, is the power of how compounding can build up returns very quickly.

The graph above shows the impact of $1,000 invested in year one and earning a rate of 8 percent per annum — not an unrealistic return, and certainly less than most businesses would be expected to return given the risk. Over the first 30 years, the impact is gradual, as the investment slowly grows to a level of $10,062, or ten times the initial investment.

At this stage, a tipping point is reached. Over the next 30 years, it again grows ten times to reach $101,250 by year 60. And again, the next 30 years shows a growth of ten times, but now the investment grows in excess of $1 million by year 90 — all from an initial investment of $1,000. In just the next ten years, from year 90 to year 100, the investment doubles in size, adding the equivalent in that ten-year period to what was achieved in the first 90 years combined!

Now 100 years is more than the lifetime of most people, but the point is still well illustrated, and this example does not take into account the addition of extra capital. If the investor had added another $1,000 every year for 100 years, the total sum reached by year 100 would reach just over $29 million!

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This example shows the power of compounding, the benefit of continuing to invest more money each year which then compounds and, most importantly in my opinion, the power of starting early. This point is best illustrated by comparing someone who starts investing an annual amount from age 20 and stops at age 28 versus someone who doesn’t start until 28 and continues to invest that same amount annually until they are 55. If both people earned the same rate of annual return, who would have the most money at 55? Believe it or not, the person who invests from age 20 and stops at age 28 is still able to achieve a higher level of wealth than the person who starts later but invests for longer, even though the later person paid more money in. The power of compounding can make up for the first person no longer investing from age 28 onwards.

Both your business investment and personal investments need to consider the power of compounding when you make your decisions. You work hard for your money — there’s no reason your money can’t be working hard for you.

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