RUNNING A SUCCESSFUL jewelry store is all about your passion for jewelry and making memorable moments in your customers’ lives, in addition to enriching your life as well as your employees. But to do this with less stress and more money requires looking at your store’s numbers.
Here are some things to ponder.
Inventory levels. If you’re a multi-generational jeweler or just heard from others “you can’t sell from an empty wagon,” sure but how big of a wagon do you really need? Having more stock than you should causes a store to have a large amount of debt and less cash.
The right amount of inventory level is easy to figure for our industry. Find your gross profit dollars for stock inventory only for a 12-month period. Up or down by 20% equals the amount of inventory to stock and not have too much debt.
If stock sale sales are $900,000 and your gross profit is $420,000, then the inventory to stock is within 20% of $420,000 (within 20% up or down means keeping in a range of $336,000 up to $504,000). Inventory levels higher than $504,000 end up increasing accounts payable and credit card debt by a lot.
Inventory turn. Every industry has a “good” turn number.
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There is a difference between making money and having money. Every jewelry store makes money and is profitable, but a poor turn ends up showing we have less cash in the bank and more debt. For our industry to have money, we need to have a turn overall of “1”. In other words, buy it in January, sell by December. Some items might turn 2-3 times a year (every 3 to 4 months and then reorder), while other items might take 15 months, but overall for the store, a turn of “1”. Point-of-sale programs will give this number, but to figure your own, divide your cost of goods amount for 12 months by average inventory.
Example: Sales of $1 million, profit $550,000, thus cost of goods = $450,000. If inventory is $425,000, turn would be 1.05. Great!
GMROI. At a doctor visit, she tells you your blood pressure, weight, cholesterol level and gives you three meds for each. Wouldn’t it be great if the doctor just gave you one number? “Hey, you’re an 8, just take this one pill daily and you’re good to go!”
Jewelry has the same system for good jewelry health. It’s GMROI (Gross Margin Return On Investment). This tells you with just one single number how well you are handling inventory (buying/selling/returning to vendor/scrapping).
It measures three jewelry numbers: How much money you make when you sell it (gross profit dollars for a 12-month period) plus how many times a year you’ve sold inventory (turn) plus how much inventory you had on average when you sold it.
Again, most POS systems have this report, but divide your gross profit dollars for a 12-month period by the average stock inventory level you had (no memo). Like turn, this number should be 1.00, give or take. Stores with a GMROI around .65 to .75 have a large amount of debt. Stores with a GMROI above 1.00 generally have very little debt and a good bit of cash in the bank.
Closing ratios. If 10 people come in the store, look in your case and ask, “Hey, how much is that ring?”, how many out of 10 customers do you sell? A typical store sells 3 out of ten, 30% closing ratio. Did you know if you could sell just one more and make it 4 out of 10, then product sales would increase by a whopping 33%?
Here are three that are typical in a store:
Closing Ratios:
a. Stock: 30%
b. Custom design: 70 to 80%
c. Jewelry Repair: 90%
Sales staff costs. Let’s assume that the owner doesn’t sell the majority of the store sales, here’s how to measure sales staff productivity.
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Divide the salesperson’s W-2 by their total sales, and that will tell you what percentage of every sale they are paid. Generally speaking, staff should cost between 8% to 15%. At 8%, they are very efficient on the floor. Closer to 15%, they are not doing well on the floor or they don’t get a chance or you let them wait on easy-to-handle low-dollar transactions and you take all of the large dollar ones.
Product has turn, while shop sales only have time. A high turn is great for looking at product sales, but the shop doesn’t have turn, it has time. The more jobs done in a day — or better yet, the more dollars produced in a day by a jeweler — is how to measure the profitability. It’s compared to total shop costs. Profits should be double shop costs.
Generally speaking, a jeweler’s workbench should produce between $175,000 to $375,000 a year in dollars, considering a jeweler is paid $45,000 a year and up.
Have a checking account and a company savings account. Each week, put 7% of the deposits into the savings account. You won’t miss it. This is your rainy-day fund when things are really tight. Leave it alone, don’t touch it. I have more in my rainy-day fund than my checking account. You’ll thank me later.
