Product retail is a lot like eating your vegetables— everyone knows it’s good for you, but no one really wants to do it. After all, why sit around crunching numbers all day when you could be learning new trends and techniques to play with? Consistently ignoring the green stuff on your plate and skimping on your retail research actually have similar consequences. You end up missing out on a lot of stuff that’s really, really good for you.
In an effort to make handling your retail situation a little more palatable (see what we did there? who says business tips can’t be fun???) we are going to break this down in to super manageable, bite-size pieces. First, we are going to tackle how to figure out exactly how many products you should have on hand in order to meet your clients’ needs, while remaining profitable.
How Much Should I Stock?
This is the biggest hurdle to get over, so we are going to tackle it first. How well do you know your retails sales numbers? Keeping track of how much of what you are selling (or not selling) is the cornerstone of building a profitable retail income stream. There are a number of great software options for tracking inventory and sales and it’s great thing to keep in mind when you are shopping for salon software.
If you’d rather keep things low-tech, a spreadsheet or ledger would work just find. You can use an abacus and scroll if you really want to, the important thing is that you are keeping track of what is coming in and what is going out, every single day.
The next step is to set a date— an actual, real date on the calendar—for reviewing your retail numbers. You can do this monthly, bi-monthly, even weekly, depending on your sales volume. Feel free to dim the lights and order in, because you and your sales figures are about to get real cozy.
One of the simplest and most effective formulas for evaluating your retail business is by using the Speed of Sales Formula*. This super simple formula can help you keep tabs on how quickly specific products are selling so that you can streamline your ordering process. The most expensive product in your shop is the one that sits on the shelf, by this formula you can root those out really quickly.
The Speed of Sales Formula: Sales/ Value x 100
For each product that you stock, simply take the amount that has sold, divide it by what it’s worth and times that number by 100. Here’s an example:
Let’s say that we want to know how our Leave-in Conditioner is selling. We can take the sales from last month, divided it by how much we have on hand and multiply that number by 100.
The Speed of Sale of Leave-in Conditioner: Amount in Sales of Leave-in Conditioner / Value of Stocked Leave-in Conditioner X 100= XX%
Notice that we didn’t say cost of leave-in conditioner? This is because sometimes there are special offers and discounts on certain products from distributors, but it’s best to consider those a “bonus” since they aren’t consistent. When it comes to projecting profit margins, a conservative (ie. highest possible costs, lower possible sales) approach is always the safest bet.
You’ll want to aim for around a 10% Speed of Sale percentage. While it may be tempting to start “scoring” higher, if a product is selling too much too quickly you risk running out and disappointing potential future buyers. If that starts to happen to a particular product, it’s a good indicator that you may want to start ordering more.
Playing with new products is hands down one of the biggest perks of working in the beauty industry. But when it comes to building an income stream from retail product sales, it’s time to get real. Setting aside time on a consistent basis to assess your products in terms of cost and sales, will help to ensure that your retail products are working for you.
*While we are in no way affiliated with this company, we heard about this formula on the Phorest podcast. Proper credit is the right thing to do :)