Thursday, August 12, 2010

Little things mean a lot

We've all heard the favorite political joke from the eighties – "A billion here, a billion there — pretty soon it adds up to real money."

Well, there's a lot to be said about that. In the convenience store business, I've seen 'a penny here, a penny there add up to big profits'. Did you know, if you increase the retail price of everything in your store by $.05, with an average turn rate of only one-per-day, it comes to an increase in profits of $54,750 a year? It's not a whole lot, but it pays the salary of two employees. It would also make my house payment for thirty months. While some convenience store operators are showing net profits of less than three percent, pennies do matter, and with a few simple exercises, I hope to get you excited about it.

Let's say you raise the price of an item by a nickel that moves five time per day (like Snickers), that comes to $91.25 in increased NET profits. Fast movers are less subject to being affected by increases of a few pennies. If you can do that with all the fast movers in your store (say 100) it comes to $9,125.

But that's only the beginning. If I can find an item in your store that's been collecting dust for the past year and replace it with an item that turns five times a day at a $.30 profit, it adds up to $547.50. So we can easily see how a single item that sits there feeding your mice is costing you lots of money.

Now here's the real killer. If you have 3,000 items in your store, I'd be willing to bet you that 300 of them are just sitting there gobbling up space. By replacing those 300 items with items that move only twice per day and produce a $.30 profit, it comes to $65,700 a year in additional profits. Do that in ten stores – nearly $658,000 a year in profits that you might enjoy if you had a way to track and manage your inventory. So confidentially, how much would you be willing to invest a year to increase profits that much? $20,000? … $48,000? How about only $4,800? But like they say on television, "Wait there's more!"

There are thousands of little things you can do if you have the tools to do it effortlessly. Think of every item in your store as a tiny little machine that generates cash. How much cash it generates is determined by how well it performs. Like machines, if you could find a broken one would you allow it to just sit there in your factory leaking oil on the floor? Of course not. You would have it replaced, or fixed and brought back into service. But the one thing you would not do is stick another broken one right next to it. Why do you allow your suppliers to put broken cash generating machines on your shelves? The time has come for convenience store operators to take the position of Walmart and other big box retailers. Sit down and talk with your suppliers and make them understand that you're in this business to make a profit, not to serve as a warehouse for their slow moving merchandise.

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