In retail it is important that every item in the store “Pays Its Rent”. That is, that all items in the store not only pay for themselves by selling at a profit, but that they sell at enough profit to make it worth the store’s investment.
For instance, if a store determines that it has to sell $33 worth of merchandise per square foot of selling space each month, then each item in that selling space must contribute its fair share of that $33.
Let’s say that each square foot of selling space has a fixture on it that is four shelves high. Let’s further say that each shelf is one foot deep. Therefore, each square foot of floor space has four square feet of shelf space. That being said, each square foot of shelf space has to sell $8.25 per month of merchandise.
Let’s say that we put candy bars on each shelf. If we sell candy bars at $1 each, then we have to sell 8 ¼ candy bars per month from each shelf to break even. When we sell the ninth candy bar, we begin to show a profit for that area of shelf space. We have to do this throughout the store.
Sometimes we may calculate the average number of customers during a given period. We then determine how much our expenses are. We determine that we have $1,000 of expenses during a month. If we also determine that we have 500 customers in a month, then we find that we average $2 worth of expenses per customers. Ultimately, we need to make at least an average of $2 in profit from each customer to break even.
If we determine that we are not making enough sales per square foot or that we are not averaging enough profit per customer, then we need to take steps to improve our overall profit per sale or reduce our expenses or both.
The opinions or advice listed in this blog or website should be used as a place to start only. It is not a substitute for the use of a professional.
Please be sure to consult your attorney and/or accountant with any specific questions.
There is no one right answer to any business question that will cover all circumstances.
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