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The Importance Of Having A Budget Mindset |  November 14, 2018 (0 comments)

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Omaha, NE--Good budgets don’t need to be complicated, but they do need to be thorough to make sure they cover your short, medium and long term financial requirements. Even though you’re heading into the busy holidays, make a resolution now to start 2019 off with a solid budget plan to increase profits.

The main driver of an attainable sales budget increase is a clear understanding of the required/desired profit needs of the business and its owners.  For example, it is possible to increase sales by 10-15% and still lose money because that increase has been achieved through discounting which has resulted in less gross profit and increased costs.

We suggest starting with the end in mind; e.g, spend some time thinking about how much profit you want and then translate that to the amount of sales you need to deliver that bottom line result.  We call this process ‘The GAP Analysis’ which is simply a metaphor to help you identify the gap between the required financial performance of your business and the current performance.

Related: Begin With The End In Mind, Part One

David Brown, Edge Retail Academy

When considering how much profit you need, be sure to include your retirement/exit plans (including a timeframe), the market salary for your role and an appropriate return on the capital you have invested in your business (a 26% return on your capital is appropriate).

Once you add all these together along with your normal operating expenses, you will know how much Gross Profit you need to generate.  This will then form the basis of your Sales Budget; e.g., if you need $500,000 of gross profit to deliver your required net return and your gross margin is 55%, you would need to do sales of $910,000.

Even putting this process to one side, we truly believe that if you are not aiming for a 20% increase in sales, you are not aiming high enough.  If that sounds unrealistic, please consider just some of the many ways to achieve this:

  1. The average store has a close ratio of around 18% - that means that 5 out of every 6 people walk out empty handed and disappointed.  By making 1 extra sale from every 10 people (10%) who are walking out, you would increase sales by 40% to 50%.
  2. Most stores make 50% of their sales from just 4% of their units: Return on Effort. Typically, around 200 items make up 50% of your dollars so if you could sell another 200 of these (or similar) items, you could increase sales by 50%.  That is much easier to achieve than selling another 5,000 items, which makes up the other 50%.
  3. Most stores have one (sometimes two) top salespeople who produce far better results than the rest of the team. Clients tell us “if we could just find another Sue, our business would take off.” What Sue proves is that it can be done.  And if she can do it, others can too.  Too many stores put up with their hiring mistakes and let non-performing people take the place of the next super star.

Some other budgeting tips …

It’s time to demand more from your business and for yourself!

If you would like to speak further about how we can help you set a budget or need more strategies on how to achieve some growth in your business, please contact Becka Johnson Kibby, 877-569-8657, ext.1 or Becka@EdgeRetailAcademy.com.

Top image: Due.com

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