Growing your business requires the same strategy as eating an elephant. An elephant is HUGE and if I were going to eat it – what would I do? How would I start? Where would I start? There is a secret and super easy way to do it… one bite at a time.
Your goal is to have a larger paycheck. The most important step you can take is to manage your single largest expense well. That means that you have to learn how to control your inventory better. The effort that you spend doing that yields such a large impact because cost of goods represents about 50% of your sales.
Think about that. If you do $400,000 in business, you are spending about $200,000 on your inventory in a year. If you were buying one item that cost that much, think about how much research and effort you would put into making a good decision. You would spend hours online looking at all different options. Yet, as buyers, aren’t we all guilty of spending $500 here and $1200 there without knowing for sure if it is being spent where it should be? That shouldn’t happen. As a client just told me, “I’m tired of feeling like I’m not doing everything I can to be successful.” So take control of your inventory and start putting more dollars in your pocket.
How to better control your inventory? Same way you eat an elephant – one bite at a time.
You have to look at the thousands of SKUs in your store and group them into classifications of inventory – or classes. A class is a group of similar inventory; similar in type of item and inventory turn. By breaking your inventory down into manageable bite size pieces, it is easy to control. When you look at your store by classes, you can analyze sales and inventory levels better. And when that happens, it becomes easier to control; the result is increased growth in your sales and profits.
We all want to give customers what they want. Customers tell us what they want every time that they buy something from us. They are voting with each dollar they spend. When they buy they are voting that they want more of that class. Not necessarily just more of that particular item! They are telling you that you do a good job buying dresses or frames. You have to look beyond the item. When you have classes, you can track what they want from you and make sure that you have just enough for them. That knowledge gives you power.
Now, you can take action on the basis of the knowledge of what the demand is for the class. Let’s say that you want to increase your purchases for the holiday by 10% because you believe that your business will grow that much. Just adding 10% across the board would be a big mistake. Business never grows evenly in every class. What happens is that some classes will be up 20%, maybe even 25%, while some will be down 15%. If you just added 10% to all your orders, you would end up over-inventoried in some classes and under-inventoried in others. You would be sending your clients away to shop elsewhere because you couldn’t give them what they wanted. But when you know the demand of each class, you can look at how each is trending and then buy accordingly. This is why EVERY single private client of mine is SIGNIFICANTLY more profitable than other similar ones. And why they all have made more money each year than the last.
Take a big first bite of that elephant! Get started right now on that journey to greater sales and profits.