Operating expenses can be the bane of any retail store owner’s existence. Let’s break down some strategies for tackling the biggest expense categories so you can regain control and boost your bottom line.
- Inventory Management: To reduce this expense, raise your Initial Markup (IMU). Ideally, the average IMU for all your inventory should be between 55-60%.
Here’s how you can calculate it: Subtract the cost of your current inventory from its retail value. Divide this figure by the retail value. Multiply by 100 to get the percentage.
If your average IMU is less than 55%, start creating cash immediately by raising your prices. Adjusting your IMU can have a significant impact on your gross profit margin, helping you to cover your operating expenses more effectively."Adjusting your IMU can have a significant impact on your gross profit margin, helping you to cover your operating expenses more effectively."
- Payroll: Payroll is another expense that often gets out of hand. It’s crucial to not just set your team’s schedule and leave it the same month after month. Your team’s payroll should not exceed 10% of your sales. This means you need to be proactive in adjusting your staffing levels based on your sales projections. When sales are expected to go down, reduce staffing hours accordingly. This might mean fewer hours for some team members. When sales are expected to go up, increase staffing hours to ensure you can meet customer demand.
- Rent: Rent can be a hefty fixed expense. Your rent should not be more than 10% of your sales (and no more than 12% when combined with your advertising costs). If your rent is too high, it’s time to negotiate. Approach your landlord with a request for a rent reduction. Ask to speak with the person in charge of making decisions and not just your property manager.
Be transparent about your financial situation. Demonstrate how high rent is impacting your profitability. Don’t be discouraged if the landlord doesn’t agree right away. Compare your rent to other similar spaces in your area. Negotiating a lower rent can free up cash flow.
For most store owners, getting these three operating expenses in line is often enough to get them to their profit point. But remember, every store is unique, so tailor these strategies to fit your specific situation.
Cathy Donovan Wagner guides retailers to grow their sales so they can pay themselves and their staff. Watch how here: www.retailmavens.com/increasesales.
