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The only way your retail business makes money

· Blog

Starting a retail business can be really scary. You have to make a lot of decisions, fast. It’s hard to know sometimes where to put your attention.

When you’re struggling to figure out where to put your time and effort, it is useful to remember the following fact:

There is only one way your retail business makes money.

It doesn’t matter how simple or complicated your business is, your only source of income is the difference between what you pay to make or buy your product, and the price that you charge your customers.

Understanding this dynamic will help you grow you business in a sustainable way.

This is just as true for big retailers.

Imagine a company the size of M&S and how many different costs that they have to cover. They have rent, wages for thousands of people, electricity bills, warehouses, lorries and millions and millions of pounds of stock to mention just a few. OK, they may have a couple of other sidelines, but the vast majority of the money that covers ALL of those expenses comes from one place - the difference between what they paid for their goods, and what they charge for them.

In retail terms, this gap is known as the margin you make on each product, and in big retailers, there are whole teams of people who obsess over this number.

You have to be obsessed too.

You have to have this same level of obsession within your own business and it starts with the following process. For every single product that you sell, work out how much money you have made after all of the costs.

Factor in every cost.

What I have said so far is not revolutionary, but it's a common mistake that retail businesses make.

They factor in the cost of the materials, but forget that they cover the postage.

They forget to factor in the cost of their own time that they took to make the item.

They forget that they send each order wrapped in a beautiful glossy box with a gorgeous ribbon on, which can end up costing as much as the item in the box.

I have even heard of a major high street retailer who didn’t look at how much it cost to ship their beautiful cushions in from the Far East. When they ran the numbers, it turns out that they didn’t make ANY money on those items! Someone spent hours designing them, people worked with the supplier to have them manufactured, they were packed up, shipped over, sent out to stores, the sales people spent time explaining how great they were, and when the customer took it home, the retailer made NO money! In fact, they would have made MORE money if they didn’t even sell the cushions!

Now, they had other products making them money, so this mistake didn’t kill them. But how long could you survive if it turned out that you weren’t actually making enough money on what you were selling?

Download my calculator

If you want to get started with this exercise now, I have created a handy Google Sheets calculator that will walk you through every cost that could go into the product.

All you have to do is click here to download it.

It will be well worth your time to do this exercise for every product in your range. Drop me a note if you have any questions and I will happily walk you through it.

Are you a fabulous female founder with a retail business you are passionate about?

Then join other Female Founders In Retail here on Facebook

Alternatively, sign up to my newsletter here and I promise I won’t spam you!

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