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The Scary Truth of Averages

“Have you ever noticed that everyone wants to be normal but no one wants to be average?” -Roy H. Williams

Did you hear the one about the statistician that drowned in a river with an average depth of three feet?

Image result for averagesIn business, everyone wants to know the averages, the average cost of rent, the average sales per square foot, the average level of inventory, etc. Averages are interesting. They can be a nice benchmark, but they can also be misleading, and sometimes downright dangerous.

Take, for example, average inventory at cost (a number you should all be tracking). If you were an average toy store doing around $500,000 a year in sales, your average inventory at cost would be around $100,000. But if you are that same toy store, your Thanksgiving to Christmas sales will likely be around $200,000, or pretty much all of your inventory if you only had the average on hand. As nice as it would be to sell to the walls, so-to-speak, you know you can’t sell it all. You also know you need some inventory in January for birthdays and post-Christmas.

Just trying to keep your store at the average will kill your holiday sales. You’ll need a lot higher inventory to start the busy season and much lower inventory the rest of the year. Rarely will you ever have the “average” amount of inventory on hand.

Another problem with that average is that $100,000 worth of toys looks a whole lot different in a 2,200 square foot store than it does in a 1,100 square foot store.

The bigger the store, the more creative you may need to be with your merchandise to keep the store looking stocked and full. The smaller the store, the more creative you may need to be with your merchandise to fit it all in. Sometimes your store space dictates your inventory levels more than just sales or industry averages.

Averages are a nice starting point, but it is worth exploring all the reasons you might deviate from the average, and be okay with those reasons.

For instance, my payroll at Toy House was a significantly higher percentage of our expenses than the average toy store. But I could afford that because my rent was significantly lower. Our sales per square foot was extremely low compared to the average, but that was because we had wide aisles to allow for shopping carts, four cash registers lines, a large gift-wrapping area, and a stage with seating/playing area—in other words, a lot of square footage not used for showing merchandise. Our average ticket, thanks to shopping carts and toy demos however, was significantly higher. Each deviation from the norm was on purpose and with a purpose.

I do many talks about the financials of independent retailers. Whenever possible I try to use an average store for that industry. But I remind everyone in attendance that these numbers are average and they should be striving to be spectacular. If all your numbers are average, you haven’t found the place to stand out and make a name for yourself.

In retail, there isn’t a prize for being normal.

-Phil Wrzesinski
www.PhilsForum.com

PS The upside to averages is that they give you a quick check of the health of your business. If you have a number way off from the averages and you don’t know why, that might be a good place to focus your time and energies on changing. The downside is that you don’t ever want to be an average store. You are destined for greater than that.

PPS Rent per square foot and sales per square foot go hand in hand. You need to be selling at least 10x more per square foot than what you pay in rent (if your profit margin is around 50%). That’s a far better benchmark than average rent or average sales per square foot for your industry. Those averages tell you nothing.

Adjusting the Sails

I learned how to sail at YMCA Storer Camps. I knew how to canoe and kayak (I even did an eskimo roll in a kayak on the New River – bucket list!) I knew how to use a paddle to get just about anywhere, but I had never learned to harness the wind.

That’s me in 1986 on the UM Sailing Team at a regatta at Notre Dame

Sailing looked easy enough. You just let the wind do all the work.

Andy, my instructor, taught me otherwise.

The wind is a fickle thing, always changing speeds and directions. A smart sailor has to constantly scan the water looking for those gusts of wind that might change your tactics.

Sailing may not be as muscle-bound as paddling, but it is just as much work. You are always trimming the sails and adjusting your course. It may look like a leisurely way to get across the lake, but the good skipper is working the tiller and main sheet all the time, making course corrections as the wind changes.

This Sunday I am going to be teaching Retail Math to a bunch of toy store owners. For many, this will be their first real instruction on the accounting side of running a retail operation.

Most people dread math. But reading reports is a lot like reading the wind. Reports can tell you where the gusts are happening. Reports can tell you if you’ve adjusted your sails properly. Reports can tell you if you’re heading in the right direction.

Many retailers think a Profit & Loss Statement (also known as Income Statement) and Balance Sheet are simply for the accountant to figure your taxes at the end of the year. They are much more powerful tools than that. They can tell you when your inventory is too high (or low). They can tell you when your expenses are out of line. They can tell you when it is time to raise your prices. They can tell you when you can pay yourself more money.

At the very least, you should be studying these documents once a month and making course corrections. If you aren’t already reading and understanding these reports, start running these two reports monthly. Learn how to read them. Then as the years go by, start comparing the current month to that month in the previous year. The more I read the wind, the better I get at predicting its next move. The more you read and know your reports, the better you will be at adjusting your business profitably.

Wind speeds (traffic in your store) change. Wind directions (fads, hot products) shift constantly. When your boat is on an even keel (inventory well-balanced) and your sails are trimmed properly (expenses in line), you will be sailing at your fastest (most profitable).

Scan the water (reports) and your business will sail much more smoothly.

-Phil Wrzesinski
www.PhilsForum.com

PS There are many metaphors for sailing. One of my favorites is … The pessimist curses the wind. The optimist hopes it will change. The realist adjusts the sails. You can’t adjust your sails, however, if you don’t know what the wind is doing. Check out the link above to learn how to read those reports and use them to your advantage. The math happens whether you know how to do it or not.

Using My Super Powers

My boys and I saw Guardians of the Galaxy Vol. 2 earlier this evening. We are Marvel Studios junkies. Even the bad ones were good enough for us. I’ve always been fascinated by super heroes, especially their powers and how they use them. I am firm believer that we all have super powers within us. Maybe not the ability to fly or super-human strength or making fire shoot from our eyes. But we have talents that, when harnessed properly, become amazing powers.

I have learned that one of my powers is the ability to take complex subjects and make them understandable.

Independent retailers have to master a number of skills to be successful.

  • You have to be good with your Products – knowing your products inside and out, knowing how to relate to customers, knowing which products to sell and how to sell them.
  • You have to be good at Marketing & Advertising – knowing how to get the word out to people that you are the place to shop.
  • You have to be good at Financials – knowing how to manage your cash flow, maintaining profit margin, keeping expenses in alignment with sales.
  • If you’re a large enough store you have to be good with People – knowing how to hire, train, and manage a quality team.

Those are the main legs of the retail business – Products, Marketing, Financials, and People.

I used to say I was good at three, just don’t ask me about Financials. Then the American Specialty Toy Retailing Association (ASTRA) asked me to do something unthinkable. They asked me to write a book about the financials of a toy store called “Financials Made Easy.”

They said if anyone could do it, I could. I told them if they changed the title to “Financials You Can Understand” (because no one could make it “easy”) then I was their guy.

In four months I learned and understood more about Financials than I ever thought possible. The book is one of my favorite writing projects because I had to take a topic I barely understood myself and translate it into the language of non-accountants everywhere. (My accountant friends who helped proof-read the book for errors were amazed as much as I was at how well it turned out.)

The book is proprietary property of ASTRA. You have to join ASTRA to get a copy. But the knowledge I gained in the process helped me tremendously at Toy House and also in my teachings through Jackson Retail Success Academy™ and PhilsForum. Later that year I did my first workshop on the topic. One of the attendees said her accountant had been trying to teach her this stuff for years, but this was the first time it finally made sense.

I have now presented several times on the topics of Retail Math, my least favorite and least experienced topic. I’ll be doing both a beginner and an expert breakout session on elements of the book at the upcoming ASTRA Academy in June.

I tell you this because I want you to understand the reasoning behind writing the book Most Ads Suck. Unlike Financials, I love Marketing & Advertising. I took over that element of Toy House in 1995 and began experimenting, trying different things to see what worked. I began studying advertising and reading different authors who spoke on advertising.

My radio sales rep Linda McDougall gave me Roy H. Williams’ first book The Wizard of Ads. I was hooked immediately. I ordered the other two books in his trilogy the very next day. I also became a huge fan of Seth Godin and joined his now defunct website triiibes based on his book Tribes where I met people as passionate about marketing and advertising as I was. I started using stuff I learned from Roy and Seth and Malcolm Gladwell and Gary Vaynerchuk and Daniel H. Pink and Guy Kawasaki and others.

Not everything I learned worked for me. I had to mix and distill and tweak and measure and test. But when it did work, it was magical.

I wrote this ad in a few minutes one Sunday afternoon in July 2008 …

I couldn’t believe it. They were taking customers into the men’s bathroom. Yes, my staff was taking men and women, young and old, into our men’s bathroom. And they were coming out laughing, smiling, oh yeah, and buying, too. I guess when you have a product this good, you just have to show it off however… and wherever… you can. The men’s bathroom… Gotta love it!  Toy House in downtown Jackson. We’re here to make you smile.

I didn’t ever think about not running it. It told a story. It made you laugh (emotion). It grabbed your interest. Yeah, it mentioned the men’s bathroom, but not in a bad or seedy way. Yeah, it never mentioned the product (if you remember the previous blog, you know that feelings are more important than facts.) Yeah, it went viral big time.

The ad ran in August 2008. Two times a day, Monday through Friday, for four weeks. That’s it.

The first day it aired, the DJ started talking about it live on air, wondering what was going on in our men’s bathroom. The second day, all the DJ’s on all the related stations were talking about it – including one of the stations that wasn’t even running the ad! By day three even the local TV talk show host was speculating on that ad. All fall my staff and I would get asked at the grocery store or the gas station about what was going on in the men’s bathroom. In March 2009 one customer stopped in and asked me because, “All we talked about at the adult table at Christmas Dinner was was going on in your men’s bathroom.” And she lived two hours away!

When people are talking about your ads weeks and months after they aired, you made memorable ads. When people are asking you about your ads even when you’re not in your store, your business is at the top of their minds. When people talk to their friends and family about your ads, you know you made an impact.

That ad wasn’t a lucky accident. It was years of study and testing. It was years of trial and error. It was millions of dollars spent learning what moves the needle and what doesn’t.

The book Most Ads Suck (But Yours Won’t) is me using my super powers to take something as complex and nuanced as Advertising, that I have spent twenty years studying and actively doing, and make it understandable. This is me at my best helping you become your best. I am asking for your support to help launch this book.

My super power is to make it understandable. I’m counting on your super power to make it happen now.

-Phil Wrzesinski
www.PhilsForum.com

PS The principles in this book don’t just work for radio ads. The principles apply to billboards, print ads, television, direct mail, email, social media, pitches to investors, political speeches, and anywhere else where you need to persuade someone. If you haven’t yet pre-ordered the book through my Indiegogo campaign, there are plenty of links above.

Words of Wisdom From 1969

Here is another gem I found buried in a file, long forgotten. My grandfather and founder of Toy House, Mayor Philip H. Conley, penned these words in June 1969, two months before hiring my dad as his new manager.

I don’t know if this was penned to put his thoughts on paper for my dad, or if it was just something that struck him one day. I do not know if it was ever read again after that day (the file I found it in was pretty darned old). I don’t even know what one of the terms means (neither did my mom or dad). He refers to “marking capacity” and “markers”. I believe those were people who put price tags on boxes like my sister and I did as young children. He also refers to “jobbers”. I know that term. Those were the wholesalers or distributors of that day. I do know there are some nuggets in there that ring so true I’m calling them universal.

Here is his June 1969 manifesto in its entirety…

Business is a matter of balance.

Good business – successful business can be achieved as good government can be achieved using a system of checks and balances.

Balance as it applies to our business, there must be a balance between the number of customers, parking, inventory, shopping carts, sales people, stock people, marking capacity, office capacity, square feet selling space, square feet of stock space, store hours, checkout capacity, and giftwrap capacity. An excess of any of these factors creates too much expense for an efficient operation. A deficiency of a factor immediately creates an excess of all other factors – this is very bad for a profitable operation. Management’s responsibility is to maintain balance.

Enough free off street parking is an obvious example. Enough shopping carts is not so obvious. If people have to wait for a cart, then their parking space becomes non-productive , floor space, sales persons, inventory, etc. all become non-productive. Very wasteful, very expensive. We must realize that the customer may be on a time limit, therefore his waiting time must be subtracted from his shopping time. And, too, waiting is most aggravating and will result in a bad attitude for the customer.

Without customers, there is no business. If a customer is not satisfied after he is in the store, there is no sense in advertising to get him in the store.

Any time a customer is not satisfied with merchandise purchased in our store, he may return it for a credit, refund, or exchange. This matter should be handled more quickly than the original purchase.

Inventory balance is most difficult for us to achieve.

Excessive inventory is wasteful as it requires too many markers, too many receivers, too much work capital, too many sales people, too much stock space, and too many markdowns. If not balanced, this is the greatest cause of business failure.

An accounts receivable policy should be set up and adhered to with all being treated alike.

Inventory turns is the number of times your total inventory is sold per year. If you subscribe to the theory that you need only a 90-day inventory, then you should turn your inventory four times a year. Food stores may turn their inventory 40 or 50 times a year. Specialty stores turn theirs considerably less. This is the nature of the business. “If you can’t find it somewhere else, go to the specialty store and pay their higher price.”

Buying direct, although at a better discount, tends to create overstock conditions. In just buying dollars alone, your better price reflects at the most an 18% savings. However, your first markdown is usually 50%. I have not referred back to the other excessive expense factors. Buying direct, except under strict control, is dangerous.

In business the obvious is not always true!!! Example: “You’re nuts to buy from a jobber when you can get from us for less.”

Jobbers have been hurting for the past several years because so many operated on buying at the best price and selling at the lowest price hoping to move mountains (and doing so) of goods. (At a profit????)

So jobbers have been financially weak which is reflected in many ways.

  1. They do not carry a complete selection.
  2. The services of a competent salesman are not available.
  3. Their plant facilities do not allow for an efficient handling of vast quantities of goods.

Historically, three or four jobbers could not supply our needs. Their selections were never broad enough. We many times were forced to go direct to satisfy our needs for a “spread” of goods as well as supplying the needs of our customers, i.e. Monopoly money, Carrom refills.

Direct suppliers and jobbers giver preferential treatment usually to the largest customers. But not necessarily sometimes to the most regular – frequent – steady – GOOD PAY buyer. Over the years loyalty is pretty much a thing of the past.

No one seems to assess the market today. In years gone by, it was wise to spend time assessing how much could be sold profitably in the market and then budgeting the business accordingly. No one ever realized how large this nation’s ability to consume really was.

Business is a matter of keeping all relevant factors (and there are untold, unseen ones) in balance.

-Philip H. Conley

-Phil Wrzesinski
www.PhilsForum.com

PS The more things change, the more they stay the same. This June I’m going to be speaking to the toy industry about how to keep things like inventory and cash flow in balance. If you would like me to speak to your industry, I have some insights that go way back.

How Will You Measure 2017?

The New Year is here. Your New Year’s Resolutions are gone. The inventory has been counted. The mail carrier is complaining about all the catalogs weighing down his bag. You’re trying to make sense of what just happened in 2016. (Or just trying to forget what happened in 2016.) 2017 is here whether you’re ready or not.

The only real question you need to answer right now is…

How will you measure 2017?

Will it be by growth in top line sales or bottom line profits? Will it be by management of cash flow or expenses? Will it be by the number of days you actually take off? Will it be by the number of human resource headaches you have (or don’t have)?  Will it be by “likes” and “shares” and “comments” on social media?

You get to choose. You have to choose. You have to decide where to put your limited energies and resources. If the bottom line is good, you work on cash flow. If the money is good all around, you work on HR. If the staff isn’t giving you any hassles, you work on PR and social media. If all of them need a hand, decide which one is most critical (hint: cash flow) and go there.

PICK A PROBLEM, SET A GOAL

The key is to determine what you want to measure and – most importantly – how you’re going to measure it. It is that second part that gives you the  map to guide your decisions for the year.

Most businesses fail to set specific goals. They set vague ones like “grow profit”.  Then they forget all about those goals the very next morning as the day-to-day running of the business takes hold. But if you say “grow profit by $5,000” then you know you need to increase sales, decrease expenses, and/or increase profit margin. If you say, “grow profit by $5,000 through better control of expenses” you have an even clearer path.

The more specific your goal, the easier to plot the course. The more you make it known and talked about with your team, the more accountable you (and they) will be. The more you reward the team for reaching the milestones you set throughout the year, the more they will help you.

Roy H. Williams said it best, “What gets measured and rewarded, improves.”

The more specific you make your goal, the easier it is to draw a map that will get you there.

-Phil Wrzesinski
www.PhilsForum.com

PS Once you’ve set your destination, do yourself a favor. Print it out and paste your goal somewhere in the back office area where you will see it daily. Tell your staff the goal and ask for their input on how to get there. Talk about your goal in every single meeting. Research new ways to reach your goal. Set up milestones to measure your progress. Hold yourself accountable to your goal. Reward yourself and your staff as you reach each milestone along the way.

PPS Not sure how to set your goals or need help with your map? Send me an email. As always, I’ll do whatever I can to help.

Newly Redesigned PhilsForum.com Website

I told you I was working on a new version of my PhilsForum.com website.

It just went live a few minutes ago.

Everything is up and running except this blog (which should be migrated over by late Thursday).

In an effort to make it more search engine friendly, some of the pages you’re used to seeing have new names.

  • Freebies is now Free Resources and still includes links to free pdf’s you can download on a variety of topics
  • Speaker for Hire is now Hire Me to Speak and focuses on the top programs I am most often hired to do
  • Products is now Phil’s Books and focuses on my two books, Hiring and the Potter’s Wheel and Welcome to the Club Daddy
  • Media is now About Phil and yes, it is about me

You’ll also find a few fun things hidden here and there on the site including a page of radio ads I have run for Toy House and Baby Too.

Check it out and let me know if there are any issues with the site (tell me what browser/platform/device you’re using, please).

Every time an independent retailer grows, we all grow.

-Phil Wrzesinski
www.PhilsForum.com

PS Supposedly all email subscribers will be migrated over, but I will be looking into it directly. You may get an email from me asking you to resubscribe to the new blog site. Just giving you a heads up.

Launching a New Website – The Jackson Retail Success Academy

Back in February 2008, the newly hired director of The Enterprise Group, Scott Fleming, invited all the alphabet groups in town to a meeting to discuss how we were supporting existing retailers in Jackson.

The DDA, SCMW, SBTDC, JLF, EDC, JCCC and MA were all there. I was there. Everyone but Scott himself who got called away at the last minute.

The question of the day was, “What is your agency doing to help indie retailers survive and stay in business?”

After seven people said, “Absolutely nothing,” an idea was born – the Jackson Retail Success Academy (JRSA). Less than two months later we launched our first series of classes.

I was the only retailer sitting at that table that morning, so I was asked to come up with a curriculum (a healthy dose of customer service, marketing & advertising, inventory management, financials, and hiring & training). Ten businesses signed up for that inaugural class.

Over the next several years, we tweaked the class schedule to make it work better for the attendees. We had start-ups attend. We had new owners taking over old businesses attend. We had non-retail businesses who wanted the customer service, marketing and hiring segments attend. We had business coaches who wanted to learn new techniques for teaching attend. We had restaurants, online retailers, and home-based retailers attend.

The cool thing is that JRSA is still around and still getting better. The class schedule is shorter (from an original 10-week program down to 5 weeks now), but the content is better, tighter, and more focused.

A retailer who takes this class will have amazing tools they can use to fix almost any kind of retail problem.

Finally, a website with all the details is up.

www.JacksonRetailSuccessAcademy.com

Just like the class, the site is constantly being tweaked and will continue to get better. The retailers in Jackson ready to take their businesses to the next level are already checking it out and signing up for the next class starting in January.

What are you doing to grow your business?

-Phil Wrzesinski
www.PhilsForum.com
www.JacksonRetailSuccessAcademy.com

PS If driving to Jackson five times is out of the question, but you still want to grow, I have a Road Show version of JRSA I can bring to your town. You only need to convince five businesses to sign up and find a place to hold the classes and I’ll do all the rest.

Putting Amazon and eCommerce Into Perspective

It is about that time of year when you start hearing all the news about Amazon and Wal-Mart and low prices and discounts and the death of mom & pop shop retailers.

Yeah, Amazon is huge. In 2013, they did $75.4 billion in sales. That was 28.6% of all US eCommerce!

But it was only 2.5% of all retail. In fact, if you take gasoline and groceries out of the mix, eCommerce only accounted for 8.8% of all retail dollars last year.  (see references below)

Think about that for a moment. All the hype about Amazon and the Internet, yet over 9 out of every 10 dollars spent in retail were spent in a brick & mortar store. Brick & mortar is so far from dead, that any report you hear otherwise should be discounted immediately.

Yeah, Wal-Mart is huge, too. Almost four times bigger than Amazon. In 2013, they did $279 billion in sales in the US. That was 9.2% of all retail – more than all of eCommerce!

But once again, that shows you there is still plenty of room for you to do business. Add up Wal-Mart and all of eCommerce and you still have 82% of the retail dollars going somewhere else. That’s almost $2.5 trillion dollars going somewhere else.

That somewhere else ought to be you and me. If we quit worrying so much about Amazon and Wal-Mart and the demise of the mom & pops and start focusing on making ourselves better, it will.

-Phil Wrzesinski
www.PhilsForum.com

PS I used two sources for the numbers you see above. The first source here from emarketer.com claims that all retail was $4.5 trillion. But I felt that number was inflated by things like gasoline purchases and other non-eCommerce retail, so I also used the numbers from the US Census here to get a true product purchase number just over $3 trillion.

PPS And the number from Amazon is their total sales, not just US sales, so their percentage of the US market may be a little bit lower.

How Much Cash is Enough?

(Warning: This post includes math. If you wish to stick your head in the sand and stay away from all things math, do so now.)

This is a big question at the end of the year for pretty much all retailers, especially us seasonal retailers. We’re flush with cash from the big Christmas season. We’re thinking we want to give ourselves a nice bonus, possibly pay down a loan, or even bonus the employees who worked so hard.

We just want to make sure we have enough cash for the upcoming year. But how much cash is enough?

You need to calculate two numbers – Current Ratio and Cash-to-Current Liabilities Ratio.

To do that, you need a Balance Sheet from January 1st. Your accounting software can easily print that for you. (If you don’t have any accounting software, take some of that cash and invest in Quickbooks and a class on how to use Quickbooks – it will pay for itself in one year!)

On your Balance Sheet locate these three numbers.

  • Current Assets
  • Cash
  • Current Liabilities

The Current Ratio is calculated like this:

Current Assets divided by Current Liabilities = Current Ratio

The answer will typically be shown as a number like 2.9. A good rule of thumb is to have a ratio of 1.5 or higher. Typically seasonal businesses at the end of their season will have a ratio around 3.0 or higher. If your number is around 3.0, that’s pretty good.

The Cash-to-Current Liabilities Ratio is calculated like this:

Cash divided by Current Liabilities = Cash-to-Current Liabilities Ratio

The answer will typically be shown as a percentage like 75%. For some businesses you would ideally like between 10-20%. But for seasonal businesses entering their slower season, you will want much more, as much as 70-80%. If you are a seasonal fourth quarter business, 75% is a good number to have right now.

Separately, the two numbers only tell part of the story. The key is to look at both together. If both numbers look good, then your only real worry is deciding what to do with the extra cash. If both numbers are weak, then you have some tough decisions to make to try to raise some cash and get cash flow under control.

But when one is weak and the other strong, there are a number of issues at play.

If the Current Ratio is strong but the Cash-to-Current Liabilities is weak, then you likely have too much inventory. That may be on purpose because you got a good buy or are planning an expansion or are growing inventory for the upcoming season. Or it may be that you bought too much last year and are carrying excess inventory. It might be time to have a sale.

If your Current Ratio is weak but Cash-to-Current Liabilities is strong, you need to start writing orders and building up your inventory.

The math isn’t that hard to do. The results, however, tell you a lot about the health of your business. Don’t ever be afraid of the Math.

-Phil Wrzesinski
www.PhilsForum.com

PS If you are a summer seasonal business go pull your Balance Sheet from the end of your season and do those calculations from there. If you are not a seasonal business (doing 40% or more of your annual business in one quarter), then you don’t need the big build-up of cash so those numbers can be much lower. Just keep an eye on them each month.

Give Your Business a Physical – Track These Numbers, Too

There are many different metrics you need to measure to determine the health of your business. Two of the biggest are Profits and Cash Flow. If both of those are good, your business is probably doing well.

But that doesn’t mean you don’t look at other numbers, too. That would be the equivalent of a doctor checking your temp and blood pressure and determining you are completely healthy without looking at anything else.

Here are some other numbers you should track to keep a check on the pulse of your business.

Traffic – Number of transactions you had this year compared to last year. Did that number go up or down? If it went down, why? 
  • Did your location get worse? 
  • Was there a change in the types and numbers of stores around you? 
  • Was there a drop in population? 
  • Did you cut back your offerings and categories significantly?
If your traffic was down, but none of these other factors were negative, you have a hole in your Customer Service (repeat and referral business) and/or Advertising (first-timer business). You need to find that leak and fix it fast.

Average Transaction – Take your total sales and divide by # of transactions. Compare to last year. If this number went down, why? 
  • Did you carry fewer high-ticket items? 
  • Did you add more low-ticket impulse items that people might run in and grab? 
  • Did you do anything to attract more youth? 
If none of those factors were in play but your average ticket went down, you have a hole in your staff’s ability to sell. You need to fix that fast.

Market Share – This is a little harder to calculate, but an incredibly valuable piece of information that can pinpoint problems – even if you had a great year on paper!
  1. Find the national sales figure for your industry. 
  2. Divide that by the population of the United States to determine sales per person. 
  3. Multiply that times the population of your trade area to determine the market potential for your area.
  4. Divide your total sales by that market potential to find your percentage or share of the market.
  5. Compare it to last year’s number.
You can have an awesome year with solid sales growth and decent profits and cash flow, but still be in potential trouble if your market share is slipping. If all your growth was fueled by huge growth in your market, but you aren’t holding onto your share of that market, then you are ripe for being picked off by a better competitor entering your market. You need to figure out why your share is decreasing and fix that problem now.

You can also have a lousy year with declining sales and profits, but mostly fueled by a change in the market. Maybe your industry is in decline (smaller sales per person). Maybe your trade area is shrinking. But if your market share is growing, then your big issue is determining whether to cut expenses and inventory and hope the market comes back or move to a new market.

Make sure your Profit and Cash Flow are good. Those are immediate life threatening problems for your business. If those are good, it buys you time to check/fix the other problems.

Give your business a full physical. An ounce of prevention is worth a pound of cure.

-Phil Wrzesinski
PS Be honest in your evaluations. Even if there are circumstances beyond your control, there are always circumstances you can control and improve while you ride out the storm.