Retail Dictionary and Math

“Our calls with Christine are the highlights of the week. Our sales started to grow as quickly as two weeks.”

– Bo Kim, BOCNYC

Here are some basics to help you make Profit. Confused? I’m here to help.

MARGIN

GROSS margin is (measured as a percentage) and is the difference between the selling price and the profit. the formula is sales – cost of goods / sales. Margin is where you start to set your retail price on the path to profit BUT do not end there. Also margins fluctuate as the items do not sell and markdowns are involved. However, I’ve seen retailers prioritize high margins and lose valuable selling time.

IMU: Initial Markup

IMU is amount you markup your item from your cost. IMU is your goal profit. It’s the amount of money you make if everything sells at FULL PRICE. The MINIMUM IMU is 2.2. Take the COST x 2.2 = FULL PRICE. Example: your items costs you $10 to buy, make or that’s the cost to you as a drop shipper. Take $10 multiply by 2.2 which equals $22.00. That is your FULL PRICE at RETAIL. One of retailers biggest fails is to not have the right IMU from the start. Having a price too high is a risk as well.

Turn: Inventory Turnover

Turn measures how QUICKLY your item sold. But don’t be fooled, a “turn” that is too fast means you are losing money as much as a turn that is too slow (and is not selling not). It’s necessary to plan turn for EACH category. The math is simple: sales / inventory = turn. An example is to take sales of $10,000 divide it by $4,000 of TOTAL inventory owed = 2.5 turn. The right turn depends on the category: for example, high fashion and seasonal inventory should have a turn of 3.5 or more to be successful.

OTB: Open to Buy

OTB is cash, period. Specifically, OTB is the cash you have to spend on inventory. This is determined against your sales plan and budget. It is way to often overlooked and is THE major tool to make and keep the store profitable. An OTB plan helps a retailer stock the right amount of the right products at the right time.  This is a critical, so read it again: the right amount of the right products at the right time. OTB requires keeping detailed reports of a)inventory you already have b) inventory ‘in transit’ (on it’s way to you) c) inventory on order. This sounds basic but you’d be surprised how many retailers end up over-bought because of lack of attention to this detail. To calculate your Open to Buy: $15,000 (Planned Sales) + $350 (Planned Markdowns) + $25,000 (Planned End-of-Month Inventory, October 31) – $30,000 (Planned Beginning-of-month Inventory, October 1) = $10,350 (Open-to-Buy at Retail)

Avoid Mismanaging Inventory

Mastering these calculations, and more like planned markdowns, will lead you on the path to profitability. Retail is an art – it’s creative and fun, however, be sure to include the analysis. I am here to help. Read more HERE and let’s connect!