As a retail business owner, this is something you may hear on a daily basis. Be confident in your answer -- reframe the question and do the retail math! breakwater shares three data points to calculate + compare year-to-year financials:
Sales per Square Foot
Gross Margin Percent
#1 Ask Yourself: "How productive is my selling space? "
Net Sales $ / Sq. Ft. of Selling Space = Sales per Sq. Ft. of Selling Space
Net Sales $ / Sq. Ft. of Total Space = Sales per Sq. Ft. of Total Space
While online sales continue to grow, many small retail boutiques continue to sell the majority of their products from a physical location. In this case, the sales per square foot is an important data point to tell you how productive your selling space is for you. The higher the sales per square foot, the better.
Further thoughts to mull over.
#2 Ask Yourself: "How many times is my inventory turning over in a given year?"
Inventory Turnover = Cost of Goods Sold / Average Inventory*
*Average Inventory = (Beginning Inventory + Ending Inventory) / 2 for a given time period
Cash management is the biggest challenge for any retailowner. The key is to closely manage inventory. The inventory turnover data point gauges how many times a business is turning over inventory in a given year. You can use this data to help identify fluctuations and opportunities to improve your inventory management.
Thoughts to get your started.
#3 Ask Yourself: "Can I afford to hire another employee and/or upgrade my space?"
Gross Margin % = (Net Sales Less Cost of Goods Sold) / Net Sales
Gross Margin shows how much revenue is left after the cost of inventory sold. Gross margin allows a business owner to pay operating costs like rent and payroll and hopefully leave a healthy profit.