In our last article, we gave you tips to optimize your retail store sales. We discovered that excellent products, a driven and knowledgeable sales team and a favourable business location are all factors in the retail industry that contribute to success. Having all of these elements in place, however, will prove worthless if you have no control over your business costs.
Unlike other industries, the retail sector traditionally operates on low-profit margins and relies on volume to accumulate money. An example of this was found through a study of Canadian retailers who recorded profit margins of just 2.3% in 2015 (Taken from the Conference Board of Canada). This means that it is even more important to control your expenses when operating on such a tight margin.
Logging expenses individually
The first step you can take is to break down your expenses so you can understand the individual costs involved with your business; these include administrative costs, overheads like rent and electricity, marketing and sales costs, payroll services and that actual cost of your stock. Once you have found the individual areas, you can better manage them. Typically the largest cost is employment (I.e. the staff who run your retail outlets etc), followed by the other costs mentioned above – With Canadian retailers, employment costs can account for up to as much as 13% of your total costs.
Having an online presence
Operating a physical retail location comes with heavy overheads – These costs are minimal when operating an online store; All you need to account for is the upkeep of the store and website, any transaction fees etc and your usual production costs – There are no costs for items like rent, water rates or electricity. The most successful retailers will combine their physical store locations with their online counterparts to maximise their potential customer base and also give customers the security of having a place to go to either collect the goods or speak to someone face to face if something goes wrong. Selling prices must be altered accordingly in an online environment – Competition is steeper and consumers typically expect some kind of online discount.
Taking advantage of available tools
There are numerous tools available to retailers that can level the playing field, give you a competitive advantage and help you control your costs in a more effective manner. Listed below are several of these tools with explanations of how they can help:
1. Digital marketing
Marketing is an essential means to gain customer and entice potential customers to view your products. Social Media has become a prominent method of online marketing with a relatively low cost – Things like sponsored Facebook posts cost maybe a few dollars, but can reach thousands of people – If only a handful of people click through and purchase a product you have paid for your advertising and increased your visibility to your potential customer base. Blogs like Neilpatel explain well how to begin with Facebook Ads. Aside from sponsored ads, having regularly maintained social media accounts such as Twitter, Instagram and Pinterest will boost the interest in your business and improve your search ranking ratings.
2. Employee management
Time is one of the most important assets of a business – You have limited time to work with and to run a successful business you must manage that time effectively (which in itself takes time!) As a business owner you cannot get bogged down with employee management therefore it is important to find ways to allow this business aspect to manage itself. There are apps and online programs available that make staff management easy and in case even allow your employees to enter their own working hours etc.
3. CRM Software
Customer relations is another important aspect of business – If you understand your customer base and tailor your business to cater to their needs they will hopefully come back for future purchases. It is much easier and less expensive to retain existing customers than to acquire new ones. CRM software will provide you with a detailed analysis of your customer base and allow you to make tweaks to your business to better suit the trends and data collected.
Productivity of Employees
There will be instances where certain employees perform better than others – In a perfect world, everyone would give you exactly the same output, sadly this is not the case. Tracking employee productivity could allow you to shift staff around and change roles to maximise your production and get the best out of all your staff. First, you would need to create a benchmark figure which can be achieved by dividing your total sales by your number of employees. Once you have that figure, you can see which members of staff are exceeding this level, and those who are below the average – You can then look at swapping shifts etc and trying out different worker patterns etc.
The above will give you a solid grasp of your business costs, enable you to better manage them and also to make savings where appropriate – All of this combined should enable you to squeeze the most from your sales and make a respectable amount of profit!