the maths of merchandising pdf

The Maths

of

Merchandising

Charlie Turnbull Turnbulls Delicatessen & Caf

Cheesemonger

[Ex-accountant]

Effective Merchandising & Marketing

Merchandising questions

you ask yourself...

What should I sell?

At what price?

How much of it?

How do I sell it?

Am I doing it right?

Effective Merchandising &

Marketing

What your shop can do for you


Marketing

Part 1:

You need a

GRAND PLAN!

(otherwise known as you business

plan)


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Building a

realistic business model


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Your Farm Deli

Turnover 437,020

Cost of sales 65% 284,063

Gross profit 35% 152,957

staff costs 14% 61,183

Profit after staff 21% 91,774

Property costs 8% 35,000

Overheads 3% 13,480

Operating profit 10% 43,294

Interest 8,000

tax 5,294

Net profit 7% 30,000


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Key Learning 1:

Use the shape of your shop and industry

norms to establish realistic targets for

Turnover

Margin

Staff Budget


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Part 2:

Turnover

vs.

Margin


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Turnover for 30,000 profit at different Gross Margin levels

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

26

%

27

%

28

%

29

%

30

%

31

%

32

%

33

%

34

%

35

%

36

%

37

%

38

%

39

%

40

%

41

%

42

%

43

%

44

%

45

%

Average Gross margin

Tu

rno

ve

r


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Profit to margin

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000

50,000

60,000

40

%

39

%

38

%

37

%

36

%

35

%

34

%

33

%

32

%

31

%

30

%

29

%

28

%

27

%

26

%

25

%

24

%

23

%

22

%

21

%

20

%

Average margin

Pro

fit

20,000 more profit:

is it easier to

Increase turnover by 120,000

to 562,000 (28% increase)

Increase margin by 5%

to 40%


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Key Learning 2:

Margin has more affect

on profit and loss than

turnover


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Part 3: Margins

turning turnover into profit

Your margins are the

ENGINE of your business


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Gross Profit Margin - 2

applications

1) on your whole business

2) on an individual product


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How to calculate gross margin

Application #1:

Gross profit in the period

divided by

Turnover in the period

* notes: exclude all VAT and account for stock changes


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A word on Stock counts You cant know your

margin without counting

your stock

at least every month

Epos systems or Pen & pencil

How to calculate gross margin

Version 2:

Profit on item

divided by

sales price per item


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How to achieve a

35%

average margin?

Turning the

margin for a product

into the

margin of your business


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A margin for each strand of your business

Deli

Farm shop

Butchery

Fish counter

Chocolatier

Bakery

Caf & Take away

Florist

Wine shop

Fruit & vege


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Department Gross margin

Cheese 40% to 50%

Home made 60% to 70%

Requires slicing 50% to 60%

Butchery 50% to 60%

Horticulture (ex vat) 50% to 60%

Fruit & vege 50% to 55%

Loose deli 45% to 50%

Loose olives 55% to 70%

Confectionary (ex vat) 35% to 45%

Alcohol (ex vat) 25% to 35%


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Why are they different?

Staff costs

Equipment costs

Wastage

Rarity vs commodity value

Sales value.


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A mosaic of margins

Your product mix must average out

to the figure in your Business Plan

BUT

your planned margins will not

be your observed margins

This is your Margin Gap


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Key Learning 3:

Build up the margin you want

for your business plan with

appropriate product groups with

the same margin per individual item


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Part 4:

The Margin Gap

Planned vs Observed

Turnover: 450,000

Planned margin 35%

Observed Margin 31%

Lost profit 18,000

What is the margin on?

Think PURCHASE UNIT

each Case of wine 30%

each Round of brie 50%

each Tray of brownies 80%

each Outer of biscuits 35%


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Take home a bottle of wine:

target 30% purchase unit margin drops to 24%

Buy a cheese & use 10% for tasters:


Miss a 5% price rise from your biscuit supplier:



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What erodes margins

o Not selling them all

o Wastage

o Damaged packaging

o Passing into your kitchen

o Out of date stock

o Incorrect pricing

o Freebies

o Promotions

o Tasters

(o Taking it home)


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Creating better margins

Rarity/novelty value

Messy stuff

Unusual sizes/specialist foods

Packaging

Product that needs to be bought from humans not a shelf

Product sold loose or requires slicing

Value added or home made products

Suppliers that dont sell into supermarkets

Deals with suppliers

Key Learning 4

Measure Your Gap

Value Your Gap

Find out why

Close Your Gap


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Part 5:

Talking

CONTRIBUTION

What is contribution?


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Contribution

Contribution is the RENT

paid by an individual product

or a group of products


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Contribution: Calculating it

The total contribution over a specific period

Example: FCC charcoal crackers Carrs water biscuits

Sales 100 2.95 295 300 0.99 297

Margin/COS 40% 177 30% 208

Contribution 118 89

Rank your products lines

according to the amount of

contribution they pay you


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A word on lower margin

high value goods


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Key Learning 5: Make your stock pay their rent.

Choose & discard depending

on a products lines Contribution


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Part 6: Staff costs

Keep the costs in balance


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Turnover for 30,000 profit at different

Staffing Levels

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,0005%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

Average staff costs as % of turnover

Tu

rno

ver


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How to control staff costs

1: Set budgets

2: Build a rota based on your budget

3: Try to meet it!

Focus on

Improvement not Targets


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Key Learning 6:

Staff is a cost

Measure it as a percentage of turnover

Match to budget rota


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Key Learnings: Recap

1: Build a business plan

2: Focus on your margins. Learn how to plan and set

margins for individual products & observe the

margins on your whole business

3: Group products with similar margins, and build a

mosaic of sales that matches your business plan

4: Measure and work on your Margin Gap

5: Make each stock line pay its rent

6: Measure & match to budget staff costs


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The Grand Pan

Look after your individual stocklines

and the Grand Plan will look after itself

the maths of merchandising pdf

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