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David Brown: Reining in Overheads

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David Brown: Reining in Overheads

David Brown: Reining in Overheads

How to keep those costs in check

BY DAVID BROWN

David Brown: Reining in Overheads

Published in the May 2013 issue

I often like to compare running a business to filling a bucket with water. It’s great to pour water in the top, but there’s little point if the bucket is leaking just as quickly out the bottom!

This analogy can apply to your business, when you compare how much you are selling against how much profit you have left at the end of the day. Although these figures are never the same, you expect to see a correlation between sales made and profit retained.

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The process from sales to profit steps through a couple of key stages. The first is gross profit, where you determine how much you make on the item net of its acquisition cost. An item purchased for $5 and sold for $10 will show a gross profit of $5, as it is the difference between the two. Controlling gross profit and margin, through increasing markups and reducing discount, will have an immediate impact on your profitability.

But that’s only one potential hole in your bucket. Beneath this level comes your overheads, all the other associated costs you have with running a business and getting an item in from a vendor, and back out to a customer.

Of these overheads there are three main ones that absorb the majority of this gross profit money: rent, staff and marketing. Rent is not controllable on a day-by-day basis, so lets look at the other two.

Of the two, staff is almost always the highest cost for a business to endure … and not just in terms of outlay on wages and training, but also the hidden cost of lost sales and profit if inexperienced, untrained or unsuitable staff are placed in the position of making the sale. This figure is harder to quantify, but it’s predicted it can be a significant percentage of the wage bill, and for some businesses with the wrong staff the cost of lost sales may be even greater than the wage bill being paid!

A regular review of your wage bill is important — generally 15 to 20 percent is the normal portion of sales spent on wages for an average jewelry store. Identifying the timing of your sales (busiest days and hours) and having a door counter can help you minimize staffing levels during quiet times.

Have you reviewed your marketing costs lately? Many stores tend to market by habit, holding down annual contracts with media that they have used for years, often without testing the results of their outlay.

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If you haven’t reviewed these contracts don’t let them continue from habit. They can often be an easy out — the business owner doesn’t have to think about where they will advertise, and in some case, what they will advertise. But abdicating this decision to the media will not be in the best interests of your business. Only you know your business best. Take the time to make the important marketing decisions yourself, and avoid the unnecessary costs of these commitments just because you don’t want to have to think about it.

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 [email protected] or Phone toll free (877) 5698657

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SPONSORED VIDEO

Wilkerson Testimonials

If It’s Time to Consolidate, It’s Time to Call Wilkerson

When Tom Moses decided to close one of the two Moses Jewelers stores in western Pennsylvania, it was time to call in the experts. After reviewing two candidates, Moses, a co-owner of the 72 year-old business, decided to go with Wilkerson. The sale went better than expected. Concerned about running it during the pandemic, Moses says it might have helped the sale. “People wanted to get out, so there was pent-up demand,” he says. “Folks were not traveling so there was disposable income, and we don’t recall a single client commenting to us, feeling uncomfortable. It was busy in here!” And perhaps most importantly, Wilkerson was easy to deal with, he says, and Susan, their personal Wilkerson consultant, was knowledgeable, organized and “really good.” Now, the company can focus on their remaining location — without the hassle of carrying over merchandise that either wouldn’t fit or hadn’t sold. “The decision to hire Wilkerson was a good one,” says Moses.

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David Brown

David Brown: Reining in Overheads

Published

on

David Brown: Reining in Overheads

David Brown: Reining in Overheads

How to keep those costs in check

BY DAVID BROWN

David Brown: Reining in Overheads

Published in the May 2013 issue

I often like to compare running a business to filling a bucket with water. It’s great to pour water in the top, but there’s little point if the bucket is leaking just as quickly out the bottom!

Advertisement

This analogy can apply to your business, when you compare how much you are selling against how much profit you have left at the end of the day. Although these figures are never the same, you expect to see a correlation between sales made and profit retained.

The process from sales to profit steps through a couple of key stages. The first is gross profit, where you determine how much you make on the item net of its acquisition cost. An item purchased for $5 and sold for $10 will show a gross profit of $5, as it is the difference between the two. Controlling gross profit and margin, through increasing markups and reducing discount, will have an immediate impact on your profitability.

But that’s only one potential hole in your bucket. Beneath this level comes your overheads, all the other associated costs you have with running a business and getting an item in from a vendor, and back out to a customer.

Of these overheads there are three main ones that absorb the majority of this gross profit money: rent, staff and marketing. Rent is not controllable on a day-by-day basis, so lets look at the other two.

Of the two, staff is almost always the highest cost for a business to endure … and not just in terms of outlay on wages and training, but also the hidden cost of lost sales and profit if inexperienced, untrained or unsuitable staff are placed in the position of making the sale. This figure is harder to quantify, but it’s predicted it can be a significant percentage of the wage bill, and for some businesses with the wrong staff the cost of lost sales may be even greater than the wage bill being paid!

A regular review of your wage bill is important — generally 15 to 20 percent is the normal portion of sales spent on wages for an average jewelry store. Identifying the timing of your sales (busiest days and hours) and having a door counter can help you minimize staffing levels during quiet times.

Advertisement

Have you reviewed your marketing costs lately? Many stores tend to market by habit, holding down annual contracts with media that they have used for years, often without testing the results of their outlay.

If you haven’t reviewed these contracts don’t let them continue from habit. They can often be an easy out — the business owner doesn’t have to think about where they will advertise, and in some case, what they will advertise. But abdicating this decision to the media will not be in the best interests of your business. Only you know your business best. Take the time to make the important marketing decisions yourself, and avoid the unnecessary costs of these commitments just because you don’t want to have to think about it.

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 [email protected] or Phone toll free (877) 5698657

Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

If It’s Time to Consolidate, It’s Time to Call Wilkerson

When Tom Moses decided to close one of the two Moses Jewelers stores in western Pennsylvania, it was time to call in the experts. After reviewing two candidates, Moses, a co-owner of the 72 year-old business, decided to go with Wilkerson. The sale went better than expected. Concerned about running it during the pandemic, Moses says it might have helped the sale. “People wanted to get out, so there was pent-up demand,” he says. “Folks were not traveling so there was disposable income, and we don’t recall a single client commenting to us, feeling uncomfortable. It was busy in here!” And perhaps most importantly, Wilkerson was easy to deal with, he says, and Susan, their personal Wilkerson consultant, was knowledgeable, organized and “really good.” Now, the company can focus on their remaining location — without the hassle of carrying over merchandise that either wouldn’t fit or hadn’t sold. “The decision to hire Wilkerson was a good one,” says Moses.

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