- Increase revenue by 2% (follow the pricing strategies)
- Reduce COS by 1%
- Reduce Expenses by 2%
A 50% increase in Net Profit can be generated in one of 3 ways:
1. Sell More
Selling more is obviously the domain of:
- Advanced Selling Skills
- Great customer service
- Excellent Merchandising
- Marketing & Promotions
Each of these is really a topic worthy of detailed exploration and should be. In our experience though, most retailers only think of these facets and neglect the other drivers of profitability.
2. Charge More
- Check each sub-category and reduce the number of price points from x to 5. Customers don’t really get the difference between say a pepper grinder that sells for $17.95 and one that sells for $18.95. Your entry price point is your fighting/ best price point, but the others can be very easily massaged to make it more sensible to comparison shop. Adding a few cents to most products come easily. The reason why you have price point proliferation is because of ad hoc pricing resulting from adding a fixed mark-up to whatever the cost was, without thinking how the customer buys.
- In stead of charging $1.95, you can charge $1.98 and get the same psychological effect and make 5c more – on every single unit sold – forever.
- Charge for value-add services (wrapping, bags, delivery if these were always free) because if you do it better than the competition, you don’t have to match their behaviour. (And Aldi seems to have done a great job educating customers differently.)
- See our previous post about 6 sneaky pricing strategies. There are ways of raising the price without making it too obvious.
3. Spend Less
NP can be increased solely by reducing expenses, but that is not very easy as most good retailers will have very good handle on operating expenses. Therefore the target is to reduce opex by only 2%.
The biggest expense is of course your Cost of Sales. Here is a list of discounts that you can negotiate. Just because the supplier has never done it that way, does not means that they never will:
- Trade discounts
- Quantity discounts
- Promotional allowances
- Free delivery
- Early settlement
- Seasonal discounts
- Slotting fees (paying for the shelf space)
- Markdown guarantees
- Payment terms
- There is also an opportunity to ‘outsource’ some of the work around merchandising and stock management up the supply chain, reducing your own cost.
The most fertile areas for expense reduction are:
- Stop discounting the wrong products. Only discount KVIs – and only if you have to. There is way too much discounting of products – at prices that don’t increase sales volume – of products that customers don’t know the value of.
- Cash flow management. Do you have and manage your cash flow (a simple spreadsheet will do)? If not – well there is more than 2% right there!
- Bank charges & Finance costs
- Reducing Storage costs
- Re-negotiating insurance
- Proper, effective staff scheduling. Using 15 min increments rather than full hour increments will easily shave a percentage point off your wage bill.
- A better handle on shrinkage. Rule #1: Always prosecute – even though the cost/effort etc. initially seems prohibitive, the staff and shoplifters will learn pretty quickly – and that is still the best deterrent.
Every business is different, but just a little bit of attention to the right areas will make a massive difference.
The biggest reason why retailers DON’T do these little tings that have such a big impact? They are ‘too busy’. Busy working ‘IN’ the business as the cliché goes. There is a simple solution for that too – but more about that some other time. In the mean time, just evaluate the impact of 50% increase in NP vs the cost of employing another staff member to relieve you of your ‘busyness.’