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Apr 29
2009
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Retail Metrics—Increase Your ProfitPosted by Donna Tang in Pricing, Inventory, GMROI   |
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As a retailer, you have probably already realized that running a retail business is more than purchasing merchandise, marking them up and selling them. When you first got started, you probably had a good idea of what your store would look like, how your staff would present itself, how the merchandise would be displayed... Like most CEOs, you were and probably still are the visionary. But as you later found out, even great visionaries need a little pragmatism to realize their dreams.
Here are some Performance Indicators which you can evaluate your business and make improvements. You will find that you can catch these key indicators easily:
Gross Margin Return on Investment(GMROI)
Do you have investment in stocks, bonds, real estate or commercial bank deposits? Do you care how they are doing? Do you know what your payback is? Would you deposit your savings in a bank paying 7% interest when the bank next door pays 8.5%? Probably not.
The very same principles should be applied to your inventory buying decisions-GMROI. Unlike traditional ROI, which measures the rate of return on all your "investments" including building, GMROI looks only at the dollars invested in inventory. This allows you to isolate and analyze the effect of various inventory purchasing options.
GMROI can be calculated: your Gross Margin from Sales divided by Average Cost of Goods Sold.
It is obvious that your goal should always be to increase your GMROI.
But how? We will discuss on how to increase your GMROI on my next blog.
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