Assisting retailers to generate targeted profit
Business Advisory Services Update
Bookkeepers and Accountants who are offering Advisory Services can make some valuable input to retailers, who have to wrestle with a different situation from tradies when setting retail prices to achieve a targeted profit.
Retailers are working with a fluctuating mix of products that have variable volumes and mark-ups.
A retail business normally has a mix of products that contains some:
STARS – high volume/high margin
CASH COWS – high volume/low margin
PROBLEM LINES – low volume/high margin
“DISASTERS” – low volume/low margin
The challenge is to develop a strategy that maximises the ‘star’ products and places the ‘cash cows’ in proximity to ‘stars’, so that the ‘cash cows’ acts as an attraction for the ‘star’ products.
‘Setting Retail Prices Calculator’, developed by ESS BIZTOOLS, commences with the consideration of labour on costs which are transferred into the calculation of the labour budget.
The next task is to calculate the overhead budget for the year.
The desired profit should then be inserted into the calculation.
The gross profit in dollar terms that will be required can then be calculated comprising:
- Total labour costs estimated for the year including labour on costs
- Overhead budget for the year
- Projected net profit
The total of these figures is the ‘Targeted Gross Profit’ for the year.
The Bookkeeper/Accountant can then complete the analysis chart showing the product category and the estimated purchases for the year and what the expected markup percentage would be for that product.
The calculator will indicate the dollar markup and the sales value.
It is then a matter of manipulating the quantity of purchases and the dollar markup amounts to determine a pattern that will achieve the gross profit amount that the business needs to generate, if the targeted net profit for the year is going to be achieved.
The Bookkeeper/Accountant would present these calculations to management to give an overview of the various combinations that might be utilised with the products, quantity, markup to achieve the sales mix that will be necessary to generate the targeted net profit.
This could then become the ‘sales strategy’ for the year.
These resources enable Bookkeepers/Accountancy firms to offer value-adding advisory services to assist SMEs to survive.
Delivering ADVISORY SERVICES TO RETAILERS is incorporated within the BUSINESS ADVISORY SERVICES STARTER PACKAGE, which will be presented at a complimentary webinar tomorrow 21 March at 11am AEST. CLICK HERE to register.
