Checklist: "Where is the Chain Profit Hiding?" Part 1.
Profit is the main milestone for any trading chain. It is the basic and most rational source of development and expansion of retail.
It should be reminded that profit growth is the result of the interaction of many factors and processes. Therefore, if the profit does not reach the desired size, you should analyze the forming factors and their interaction. This will find "gaps" or unused reserves.
Where is the Retail Profit "Hidden"?
In the beginning, we recall that the profit of a trading chain is the difference between the received income and the incurred expenses.
Therefore, you should look for the reasons for the profit "shortage" among these components. In other words, it is necessary to increase revenues and reduce expenses at the same time.
To increase revenue, we propose to evaluate the factor's interaction in the context of the following blocks:
- Inventory Management;
- Sales Management;
You can minimize retail costs if you go through the checklist in detail for the following blocks:
- Sales Cost Management;
- Personnel and Payroll Management;
- Expenses for Marketing Activities;
- Retail Space Maintenance Costs.
How to Increase Chain Revenue?
Retail revenue is mainly received money from the sale of goods. Therefore, let's figure out where you can find reserves to increase it.
- Inventory Management:
# 1. Do you analyze the dynamics of the cost and quantity of the chain's inventory?
Retail inventory is not only a major asset, but also a type of investment. Therefore, the current state of inventory stocks and the effectiveness of investment in them should be assessed.
# 2. Do you study the structure of stocks?
You need to keep tracking how much money is invested in:
goods for sale;
product items for layout (insurance stocks);
Ideal ratios are 70/25/5%. Subsequently, you should minimize overstock inventory.
# 3. Do you analyze the share of products that should be removed from the assortment matrix?
Changing customer demand requires constant revision of the assortment. On average, the normal share of products that should be removed from the assortment is from 5% to 15%. At the same time, such actions allow you to increase sales and minimize the cost of their storage.
# 4. Are you doing ABC analysis in sufficient detail?
ABC analysis allows you to study the structure of inventory stocks according to their significance for retail.
This approach of analysis can be conducted with different indicators:
- Sales Qty;
- Checks Qty;
- Stocks Qty and stocks cost, etc.
Such information indicates which group each product item falls into and allows you to develop the most competent management strategy for each product group.
# 5. Do you analyze the dynamics and implementation of sales plans (turnover, sales qty)?
Comparison of actual values of sales indicators with planned values or values for previous periods allows you to:
- establish changes in customer demand and predict it for the future;
- identify seasonal fluctuations in sales;
- evaluate the effectiveness of promotions and the assortment matrix.
# 6. Do you study the goods turnover ratio?
The turnover ratio is the harmonization of inventory stocks and sales. Understanding how quickly goods are sold allows you to correctly and timely form orders to suppliers, avoid lost sales, and detect non-selling positions.
#7. Do you analyze lost sales?
Lost sales are the most obvious reserve for increasing the chain's profits. The reasons for lost sales may be zero stock of good-selling products, incorrect layout on the shelves, damaged items, etc.
# 8. Do you analyze the effectiveness of promotions?
Promotion is one of the most effective ways to increase goods sales and the interest of real and potential customers. A promotion results analysis shows how successful or unsuccessful they were. Such information allows you to adjust the future chain marketing strategy.
# 9. Do you analyze product margin?
Margin is the profit included in the sales price. For each retailer, it is desired that the margins of the goods should increase. But this should not affect the reduction in customers' demand.
# 10. Do you track the relationship between price changes and sales metrics?
The main task of the retailer in the pricing process is to ensure the optimal ratio between the price and customer demand.
An equally important component of profit is expenses. The checklist for blocks that are responsible for reducing costs will be discussed in the next article Retailer's Checklist: "Where is the Profit Hiding?" Part 2. Don't miss it, it will be very helpful.
All the described analytical approaches are necessary to find ways to profit increasing. And if you want to perform them quickly and accurately, we recommend using reports of BI.Datawiz platform for retailers. Unique algorithms with clear and informative visualizations allow you to get insights from the data, reduce the time for analysis and quickly make effective business decisions.