Want to improve your bottom line without the effort of growing the top line?
It takes some discipline but I’ll tell you how you might be able to do it.
First some assumptions.
If you are a retailer operating in Canada you likely have some pretty significant overhead. Cost of goods is probably the greatest expense, following by cost to sell, and then the rest of the SG&A expenses.
At the end of the day if you go home with more than 5% net profit, then you are a superstar!!! But likely you are like the rest of us and enjoying bottom line profits of 1-4%.
One of those costs (if you are “booking” your losses to your P&L) is “shrinkage” and cuts into your margin. Incidentally, if you are not booking your losses, at some point you will have to reconcile, and the surprise may be more than you bargained for.
Shrinkage in 2017 was around 1.44% of sales per year. But the range was broad – actually in excess of 4% on the high end.
Here’s the magic with this initiative of protecting the bottom line – it does not have to add expenses to your business. Increasing your top line sales (attracting that incremental customer), will have some cost associated with it so you will net out with very little. And it is incremental so you know how difficult that can be.
But protecting what you already have? Well, that’s a no-brainer.
Here are the Rationale and Steps
If you operate at a net profit of 5% (5/100) then every dollar you lose takes $20 (1/20) of sales to make up for the loss.
If you lose $10,000 to shrinkage, then your next $200,000 has no value (1/20).
But to layer on an additional $200,000 in sales takes energy and effort.
Given this rationale, if you save $10,000 it is equivalent to growing your sales, HOWEVER, the expenses are avoided, so the effort has a much greater reward.
If you have a profit of 3% and shrinkage of 2% and cut your shrink in half, you stand to layer on the equivalent of a 25% sales increase.
So how do you do it?
People! and Controls!
You can buy technology and security systems, but start with what you have and watch your bottom line grow.
There is over $5 Billion per year left on the table in Canada. You deserve a share of that and we’ll help you get there because we know Bottom Line Matters.
Hello, I'm Stephen O'Keefe. The information you read here is intended to help businesses answer some of the tough questions about everyday events in the retail environment. After spending over 3 decades in this industry we've seen a lot!
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