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{operations} Miracle Grow


a new marketing tool (the next Facebook?). Sometimes they believe it will happen because they hired a killer salesperson, or hope that new businesses will fi ll vacancies around them, which will bring traffi c. The problem with all of these “solutions” is that they are


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external to your business. You cannot predict or control them, nor can you invoke them when you need more cash. As such, while they are fun to dream about, they are not what you should focus on to improve your business. Small adjustments such as the ones outlined here, can


have enormous impact on your business. They are easy to implement, and if done properly, will bring about tremendous positive change.


Tweak #1


Adjust your selling cost Most retail businesses operate on some variation of the “base plus commission” sales model – which is often implemented poorly. Many stvores pay commissions on the fi rst dollar sold when sales people should need to hit a goal fi rst. Sometimes commissions are not planned in such a way as to keep the cost of sales in line. Let’s tweak that and see the results. First, a defi nition: “Selling cost” is defi ned as the percentage of your sales that go to pay your sales people. The formula for this is Total Cost of Sales (which includes salaries plus commission) divided by Total Sales (without tax). As an example, if you have an employee whose


216 GIFT SHOP n Summer 2014


etailers often think that the next boost in their business is going to come from fi nding the next amazing line of merchandise, or discovering


Original Situation


Revenue Fixed Expenses


$ 750,000 $ 172,500


Variable Expenses $ 142,500 Profi t before COGS $ 435,000 Improvement


$ 15,000


You can see that by implementing this strategy, we lowered their selling cost by 2%, which resulted in an extra $15,000 in cash to the bottom line. But wait, we’re not done. That’s only the fi rst tweak!


Tweak #2


Lowering your purchases This one almost seems too easy, but watch the math. We took a store and found ways to lower their inventory purchases by 2%. Look at the results.


GiftShopMag.com


Improved Situation


$ 750,000 $ 172,500 $ 127,500 $ 450,000


payroll cost for last month is $1,700 and that employee sells $12,500, then the selling cost for that employee is $1,700/$12,500 = 13.6%. Now, what if you put in a commission plan


that keeps the sales at a good percentage, such as 9%? How? Try this—take the hourly wage for your employee and divide it by .09. That number is the employee’s hourly goal. For example, if you have an employee that is paid $10 per hour, you would divide $10 by .09 and you would get $111.00. That is what that employee has to sell each hour. Now take that hourly goal and multiply it by the number


of hours that person works in a week. If he/she works 30 hours, the goal is $3,330, As soon as they hit that goal in the week, you can pay them 9% of all sales above the $3,330. This gives them incentive to sell, helps them earn great commissions, and keeps your selling cost low. We did that in a store whose annual sales were $750,000. Look at the results below.


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