David Geller: Magic Act

EVERY STORE IS made up of a lot of numbers. Cost, markups, salaries, numbers of sales, inventory levels. It gets confusing and many a store owner doesn’t know what to look at.

But some numbers are more important than others. In fact, some are so important that we call them “magic numbers” — and by tracking them, and working to improve them, your business will automatically improve. Today, let’s chat about the three numbers you can track to improve your sales numbers:

Magic 1: Closing Ratio

Closing ratio is how many people out of 10 purchase something. To get it, simply track the number of customers a salesperson talks to and then how many of those people actually bought something. I’d suggest dividing tracking into two or three groups. In my store, I tracked three:

1. Product sales
2. Repair sales
3. Custom design sales

On the third one, you might combine custom design with repairs and call it “shop sales”. Or, if your store doesn’t have any custom design sales at all, you’d track only two types: Product Sales and Repair Sales.

Let’s say Mary waits on 10 people who are looking at product and she sells two. That’s a closing ratio of 20 percent. So look at the number. You might have a half-million dollars invested in inventory, and still have eight people walk out without buying a thing. Depressing.

Just think what would happen to product sales if you could get Mary to sell just one more person out of the 10. Do you realize that the third customer would mean a 50 percent increase in product sales without any additional advertising dollars?

If Mary sold $200,000 in a year with a closing ratio of 20 percent, going up to 30 percent would give Mary sales of more than $300,000.

For the three categories we’re measuring, here’s some rough averages that I’ve found to be the closing ratios for most independent retailers: product sales — three out of 10; repair sales — nine out of 10; and custom design — eight out of 10.

Magic 2: Average Sale

To determine average sale, I’d again separate my calculations into the three groups, as repairs will lower average product sales. Calculation is easy: divide total product sales by the number of products sold. You want to look at two averages for sure, maybe three:

1. Average product sale
2. Average repair sale
3. Average custom design sale.

Keep track of these numbers monthly. It’s one of your key gauges of how well you are selling and serving your customers’ needs. But remember, your average sale could be capped by your location. I know one North Carolina jeweler who had a $75 average sale in his store on the “South Side” of town. Then he moved across town — now his average sale is over $500.

Average sales from what I’ve seen and read in trade journals: product sales —under $400; repair sales — $17 – $28 (mine was $65); custom design — $750 (mine was 50 percent higher).

A few years ago, we heard a surprising report — that the average sale at Tiffany & Co was a mere $250. You know what that means? A lot of silver jewelry sold in blue boxes.

Magic 3: Walk-In Traffic

To start monitoring walk-in traffic, go to Radio Shack and get a simple door counter. Or go to Harry Friedman’s site at www.freidmangroup.com, which has one with calculators, closing ratios … the whole shebang. Tracking how many people walk through the door will help you determine if one advertising method does as well as another you used last time.

Combined with closing ratio and average sale, you now have three numbers which will without fail indicate how well your store is doing.

A wise man once told me: “If you have a closing ratio of only 30 percent, why advertise to bring in seven more people who won’t buy? Instead, train the people you have to close better and you’ll save advertising dollars.”

As store owner/manager, your job is to:

1. Find the store’s numbers as of today.
2. Compare individuals’ personal numbers and compare them against store averages (we don’t recommend comparing these numbers directly against those of other associates)
3. Increase the individual numbers — and the store’s averages will increase automatically along with it.

Can you imagine what would happen if you had a closing ratio of 30 percent with an average sale of $200 and you went to a closing ratio of 45 percent with an average sale of $300? (P.S. To keep you from staying up tonight, if a salesperson had an average sale of $200, closing ratio of 30 percent with yearly sales of $250,000 and did this increase it would mean a whopping sales spike of $249,800.)

This story is from the February 2004 edition of INSTORE.