It’s important to know how much each square metre of retail space costs you so that you have a gross profit target when assessing the performance of stock. What I propose is not conventional. However, I have found it provides a more genuinely useful assessment for retailers.
Here are the steps I suggest:
- Calculate your retail space. Work out how many square metres of customer accessible retail space you have. Do not include the back room or space behind the counter.
- Calculate your costs. Tote up all the fixed or semi fixed costs for your business: rent, outgoings, labour, power, marketing, insurance etc. Do not include any inventory costs.
- Divide your costs by your space. This gives you an annual cost a cost per square metre of retail space. It’s the gross profit you need per square meter to cover your costs.
- Divide the cost by 52 for the cost per week or your trading days per year to get a daily cost. WARNING: the daily cost per square metre is not for the feint hearted.
Once you have the number, get your daily or weekly sales data for a department and work out where you stand. Find out which departments are working and those that are not. Next, find out which categories within each department is working or not.
While this sounds time consuming, you could just focus on one part of the business that interests you the most.
The result is data that helps you manage your business by numbers. The result will be empowering for you.
Good store software can do this for you – return on floor space and return on shelf space.
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