So now that you’ve taken some time to figure out the variety of product you are going to stock your space with, today we care going to do some math and talk about how much inventory you need to have in your space. The key to a profitable retail business is volume.
We’ve talked about pricing for profit and growth. So as long as you do that, this next formula will work for you to ensure that your sales goals are helping you make money & grow your business.
Sales alone do not equal profits. For starters you have to pay for the materials that go into the product and you have to cover your overhead expenses (rent, website, subscriptions, etc). Then you need to pay yourself for the time that you’ve put into making the product, and after those things have been paid, you can see how profitable your business is.
The Math
So at the end of day, it is a numbers game. If you are using The Perfect Price Prescription we know that material & labor cost account for 25% of the sales price. So in a booth rent scenario, being profitable isn’t just about getting a check at the end of the month. It’s about getting a large enough check to cover all of your expenses (including your labor) and then some.
For this example we’re going to say that rent is $150 and the store takes a 15% commission from sales. In this scenario, selling just enough to cover your rent means a minimum financial loss of $60/month. I say minimum because we didn’t factor in other expenses you might have such as subscriptions, website fees or tools.
In my opinion, “breaking even” in a booth is gross sales of double your rent. With this example that would pay for the booth related expenses, pay you for your labor costs on the items sold, and net a profit of about $30/month for you to reinvest in new materials. Now, that is a bare minimum. This should be the goal for the hobbyist who doesn’t need to really make money to support themselves, only needs an outlet to move product so that they can make more.
The maker or artist who is trying to grow a profitable business that actually provides income should have a minimum monthly sales goal of gross sales that equal five times the rent of their booth. Again, in this scenario that would sales of $750. Deducted from that would be $150 in Rent, Commission of 112.50, and $187.50 that cover the time and materials you have in those products (this amount should always go back into your business for more materials) That leaves you with a net profit of $300/month. Depending on your goals you may keep half for yourself and put the rest back in your business, or you may reinvest it all to grow your inventory in an effort to grow your sales!
Since that is what I consider a minimum goal, I will tell you that I believe your push goal would be 10 times your monthly rent. Once you are hitting that goal and still building volume I think it is time to increase your space to see if you can scale in the location you have. Most locations will have a bit of a ceiling. You can work on your marketing and display and still there is only so much traffic you can get in a single location. At this point you can choose to stick with one location that has an amazing presence and display and add an online element that you can scale to almost unlimited volume, or you can add a second booth location. That is definitely a question for another day and exactly the kind of thing we can talk about more in one of our Zoom Calls inside the membership!
Volume
Now that you know your sales goals, let’s talk about how that translates into volume of product. If you have a Sales goal of $1500/month. You need a minimum amount of $3000 worth of product in your booth space at all times. I say minimum because depending on the size of your space, you may need more than that.
Here’s the first rule you need to know; You will never sell more than half of the product in your booth at any given time. There are a few exceptions to this rule but they are few and far between. Once your ‘storefront’ is half empty it appears picked over and customers make a mental note that ‘the good stuff is gone’ and if they are shopping your product at that point, they are usually looking for deals.
The second rule you need to know is this; a successful booth has a constant steady flow of new product - OR - a constantly changing layout. Any local store has a steady flow of regular customers and if they look at a booth space and it looks exactly the same as it has the past few times they have been in, they will keep walking. So it is important that you are always bringing in new product and moving your product and displays around in your booth. This can be as simple as changing which piece is on your front table with items hanging against the back wall. It’s just enough shifting to make sure that your customer sees something is different and chrome closer to investigate. If you have enough product, they are always sure to see something they didn’t see last time, but you must get them into your space in order for that to happen.
So you have your worksheets from yesterday where you grouped your items into size levels and price levels. I’m not going to ask you to do detailed math and add every single price up to see where your retail value is. Though if you have a good inventory management system you can do that. For our purposes though average prices will do. So look at the list of your price levels and assign average prices to those levels. For this example we’ll use $10, $50 & $150. Remember the average ticket items are what you create the most of and what you are marketing the most, so we want about 50% of our inventory to consist of this price point. Then the remaining half will be spit between high ticket items and low price points from a price perspective. Here’s what that looks like.
Your Rent is $150, so your initial sales goal is $1500, and you need $3000 of product in order to hit that goal. 50% of that is $1500 of $50 items, so you need a minimum of 30 average priced items in your space. 25% is $750 in high ticket items which means 3-4 high-ticket pieces available. Last you have 25% or another $750 in low ticket items or 75 low priced items. Once you have that volume, work on doubling it, because remember, you can sell 10 times your rent if you have enough product, create beautiful displays and market your business well. We will get more into displays and marketing next week but those things don’t matter if you don’t have product, so the first element we have to build up is product volume.
So let’s get into the visuals. Download today’s worksheets to plug in your own numbers and determine what kind of product volume you need to be aiming for!
