INDUSTRY INSIGHT


The golden rules of buying


Andy Campbell, independent business development consultant, specialising in the gardening and DIY sectors, provides some advice on product buying and how to focus on net profitability. maximising sales is going to be


I


f asked, when it comes to buying my golden rules are:


• Think for your customer


• Focus on product that sells • Cash profit is fundamental • Always consider net profitability


Think for your customer - If you know who your customers are in terms of age, sex, demographic profile, level of knowledge and interest, and how they tend to behave when they shop the garden and home category, then you will be much better placed to put ranges together and make the right pricing and promotional decisions. In essence, if you put yourself in their shoes and think about their needs and wants, the likelihood of


significantly increased.


Focus on product that sells - A statement of the obvious, but it is not uncommon to be very focused on what is stocked and neglect the most important aspect of what is actually selling. It is a well-proven fact that 20 percent of lines often account for 80 percent of sales within a range and vice versa. It is vital to ensure the deal is right on the top 20 percent of lines, the retail pricing is correct, it is prominently located and never out of stock. It is also worthwhile asking yourself just how many of the tail of the 80 percent of lines do you really need to be authoritative.


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Cash profit is fundamental - In a retail business there can often be an


“When analysing the relative performance of different products or ranges, it is vital to consider the net profitability”- Andy Campbell


obsession with the percent margin and very little regard for the cash margin i.e. how much cash profit is made on the transaction. It is after all, the cash profit from which costs including salaries are paid and which ultimately drops down to the bottom line to pay the shareholders at the end of the day. Over reliance on percent margin as a measure of performance can lead to non-commercial decisions being made at a product level if margin targets cannot be achieved. Better 40 percent of something than 50 percent of nothing!


Always consider net profitability - When analysing the relative performance of different products or ranges, it is vital to consider the net profitability, i.e. the actual contribution they make to the bottom


line. This is arrived at by taking the gross profit position then netting off the variable costs as well as a proportion of the fixed costs to get to the net profit. This calculation might not be possible for every product decision but at the very least it makes sense to consider what the costs of achieving the sales are likely to be. Do they require very little time, effort and money to sell or are they likely to attract high costs in terms of finance, storage, handling, display, merchandising and selling? The science and art of professional


buying is much more complex than this, but these simple rules act as straightforward guiding principles. To contact Andy, please call 01225 864331, e-mail: andy@ andycampbellconsulting.co.uk or visit: andycampbellconsulting.co.uk


www.diyweek.net


APRIL 2021 DIY WEEK 19


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