Black Friday has traditionally been the turning point for retailers. The day in the year that starts the holiday season. Literally, the day on the calendar when the business becomes profitable for the year.
Most consumers have long forgotten the true meaning behind the mayhem that causes stores to open at 4am. To consumers, it is the day on the calendar when all their material desires can be had for 50% off. What a perfect day!
But as business owners, this frantic race to offer the best incentive has created endless stress and uncertainty. Peer pressure forces our hand into offering incentives we might not be able to afford.
So how can we make this holiday season work for our business?
Below are 3 easy tips to reduce stress during this holiday season!
- Offer discounts that work for you: 50% off is a great deal, but if your margin is less than 50%, you are losing money on every item sold during this promotion. We don’t want to give up on promotions entirely, but before offering your next incentive, take a few minutes to review your current margins on your various product offerings. Are some products marked up more than others? Would it be possible to promote certain products in your store while still driving foot traffic? The retail environment is tough right now with online competition from amazon and other competitors. Many retailers will be moving to more targeted savings this holiday season. Promotions such as 50% off one item in the store. 50% off for a very limited time window, and then 20% off for the rest of the day. These promotions are still fantastic deals for customers, but limit the risk of losing money for the day as a result.
- Set a goal: We want this holiday season to be a great day for our business. Our hopes for the year, and our cash depend on it. But have we taken the time to define what great would be for our business? How did our business perform in the holiday season in 2016? Are we hoping for 5% growth? 10% growth? A certain number of new customers? In life, it is impossible to hit a target we can’t see. The same is true for our business. Setting our target is the first step. Regardless of if we end up reaching our goal, these few minutes spent defining our objective will reduce the stress and uncertainty of the holiday season.
- Finding profitability: For 2017, what is the day on the calendar where your business will have turned the corner and made money for the year? In retail, October is generally a tough month. We are spending cash on the inventory we need to have on hand to prepare for the holiday season, and consumers aren’t quite paying attention yet. But by the time we get to November, we should have a good idea of where we stand for the year.
I recommend looking at your year-to-date profit and loss statement, and trying to estimate when you will cross over into profitability for 2017. If you already have, that is fantastic news! But if you are a seasonal business dependent on the holiday season, chances are your business will hit profitability sometime during the next 45 days.
This exercise may only take a few minutes and require a quick calculation:
- Look at your year-to-date numbers and seeing our current projected net income. If this is a positive number, stop. You have already hit profitability for 2017!
- If you are showing a loss, keep in mind the relationship between your margins and your net income. If your loss is $1,000, you will need more than $1,000 additional sales to reach profitability.
To calculate the additional sales needed, divide the additional sales by your margin. In other words, if you mark up your products by 50%, you would divide the $1,000 by 50% to reach the additional sales needed of $2,000 to reach break-even.
Divide the total sales by your average daily sales, and you will have the approximate number of days you will need before reaching your turning point to profitability.
Keep in mind this is a very rough calculation, and does not take into account the many variables in your business. But in rough numbers, this exercise will show us how close you are to profitability going into this critical time in the calendar year. This offers a starting point to evaluating the difference a defined goal for the holiday season with targeted promotions can have on our bottom line!
There are no easy answers in retail, even during the holiday season.
By taking a few minutes to review your promotions, setting a defined goal for your holiday sales, and finding your turning point to profitability, will help reduce the stress and uncertainty during this holiday season.
Do you need help calculating your margins? Or creating promotions that work for your business? The Largo Group can help! Contact us today for a free consultation. Our business offerings will save you time and money this holiday season!