The Maths
of
Merchandising
Effective Merchandising & Marketing
Charlie Turnbull
Turnbulls Delicatessen & Café
Cheesemonger
[Ex-accountant…]
Effective Merchandising &
Marketing
Merchandising questions
you ask yourself...
What should I sell?
At what price?
How much of it?
How do I sell it?
Am I doing it right?
Effective Merchandising &
Marketing
What your shop can do for you…
Effective Merchandising &
Marketing
Part 1:
You need a
GRAND PLAN!
(otherwise known as you business
plan)
Effective Merchandising &
Marketing
Building a
realistic
business model
Effective Merchandising &
Marketing
Your Farm Deli
Turnover
437,020
Cost of sales
65%
284,063
Gross profit
35%
152,957
staff costs
14%
61,183
Profit after staff
21%
91,774
Property costs
8%
35,000
Overheads
3%
13,480
10%
43,294
Operating profit
Interest
8,000
tax
5,294
Net profit
7%
30,000
Effective Merchandising &
Marketing
Key Learning 1:
Use the shape of your shop and industry
norms to establish realistic targets for
Turnover
Margin
Staff Budget
Effective Merchandising &
Marketing
Part 2:
Turnover
vs.
Margin
Effective Merchandising &
Marketing
Turnover for £30,000 profit at different Gross Margin levels
800,000
700,000
500,000
400,000
300,000
200,000
100,000
Average Gross margin
45%
44%
43%
42%
41%
40%
39%
38%
37%
36%
35%
34%
33%
32%
31%
30%
29%
28%
27%
0
26%
Turnover £
600,000
Effective Merchandising &
Marketing
Profit to margin
60,000
50,000
40,000
30,000
10,000
(20,000)
(30,000)
(40,000)
Average margin
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%
37%
38%
(10,000)
39%
0
40%
Profit
20,000
Effective Merchandising &
Marketing
£20,000 more profit:
is it easier to…
Increase turnover by £120,000
to £562,000 (28% increase)
Increase margin by 5%
to 40%
Effective Merchandising &
Marketing
Key Learning 2:
Margin has more affect
on profit and loss than
turnover
Effective Merchandising &
Marketing
Part 3: Margins
turning turnover into profit
Your margins are the
ENGINE of your business
Effective Merchandising &
Marketing
Gross Profit Margin - 2
applications
1) on your whole business
2) on an individual product
Effective Merchandising &
Marketing
How to calculate gross margin
Application #1:
Gross profit in the period
divided by
Turnover in the period
* notes: exclude all VAT and account for stock changes
Effective Merchandising &
Marketing
A word on Stock counts…
You can’t know your
margin without counting
your stock
– at least every month
Epos systems or Pen & pencil
Effective Merchandising &
Marketing
How to calculate gross margin
Version 2:
Profit on item
divided by
sales price per item
Effective Merchandising &
Marketing
How to achieve a
35%
average margin?
Turning the
margin for a product
into the
margin of your business
Effective Merchandising &
Marketing
A margin for each strand of your business
Deli
Farm shop
Butchery
Fish counter
Chocolatier
Bakery
Café & Take away
Florist
Wine shop
Fruit & vege …
Effective Merchandising &
Marketing
Department
Gross margin
Cheese
40%
to
50%
Home made
60%
to
70%
Requires slicing
50%
to
60%
Butchery
50%
to
60%
Horticulture (ex vat)
50%
to
60%
Fruit & vege
50%
to
55%
Loose deli
45%
to
50%
Loose olives
55%
to
70%
Confectionary (ex vat)
35%
to
45%
Alcohol (ex vat)
25%
to
35%
Effective Merchandising &
Marketing
Why are they different?
Staff costs
Equipment costs
Wastage
Rarity vs commodity value
Sales value….
Effective Merchandising &
Marketing
A mosaic of margins
Your product mix must average out
to the figure in your Business Plan
BUT
your planned margins will not
be your observed margins
This is your Margin Gap
Effective Merchandising &
Marketing
Key Learning 3:
Build up the margin you want
for your business plan with
appropriate product groups with
the same margin per individual item
Effective Merchandising &
Marketing
Part 4:
The Margin Gap
Planned vs Observed
Turnover: £450,000
Planned margin
35%
Observed Margin
31%
Lost profit
£18,000
Effective Merchandising &
Marketing
What is the margin on?
Think PURCHASE
each
each
each
each
UNIT
Case of wine 30%
Round of brie 50%
Tray of brownies
80%
Outer of biscuits
35%
Effective Merchandising &
Marketing
Take home a bottle of wine:
target 30% purchase unit margin drops to 24%
Buy a cheese & use 10% for tasters:
target 50% purchase unit margin drops to 44%
Miss a 5% price rise from your biscuit supplier:
target 35% purchase unit margin drops to 32%
Effective Merchandising &
Marketing
What erodes margins
o
o
o
o
o
o
o
o
Not selling them all
Wastage
Damaged packaging
Passing into your kitchen
Out of date stock
Incorrect pricing
Freebies
Promotions
Tasters
(o
Taking it home…)
o
Effective Merchandising &
Marketing
Creating better margins
•
Rarity/novelty value
•
Messy stuff
•
Unusual sizes/specialist foods
•
Packaging
•
Product that needs to be bought from
humans not a shelf
•
Product sold loose or requires slicing
•
Value added or home made products
•
Suppliers that don’t sell into supermarkets
•
Deals with suppliers
Effective Merchandising &
Marketing
Key Learning 4
Measure Your Gap
Value Your Gap
Find out why
Close Your Gap
Effective Merchandising &
Marketing
Part 5:
Talking
CONTRIBUTION
What is “contribution”?
Effective Merchandising &
Marketing
Contribution
Contribution is the RENT
paid by an individual product
or a group of products
Effective Merchandising &
Marketing
Contribution: Calculating it
 The total contribution over a specific
period
 Example:
FCC charcoal crackers
Sales
Margin/COS
Contribution
100
£2.95
40%
295
177
118
Carrs water biscuits
300
£0.99
30%
297
208
89
Effective Merchandising &
Marketing
Rank your products lines
according to the amount of
contribution they pay you
Effective Merchandising &
Marketing
A word on lower margin
high value goods…
Effective Merchandising &
Marketing
Key Learning 5:
Make your stock pay their rent.
Choose & discard depending
on a products line’s
Contribution
Effective Merchandising &
Marketing
Part 6: Staff costs
Keep the costs in balance
Effective Merchandising &
Marketing
Average staff costs as % of turnover
24%
23%
22%
21%
20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
5%
Turnover £
Turnover for £30,000 profit at different
Staffing Levels
Effective Merchandising &
Marketing
How to control staff costs
1: Set budgets
2: Build a rota based on your budget
3: Try to meet it!
Focus on
Improvement not Targets
Effective Merchandising &
Marketing
Key Learning 6:
Staff is a cost
Measure it as a percentage of turnover
Match to budget rota
Effective Merchandising &
Marketing
Key Learnings: Recap
1: Build a business plan
2: Focus on your margins. Learn how to plan and set
margins for individual products & observe the
margins on your whole business
3: Group products with similar margins, and build a
mosaic of sales that matches your business plan
4: Measure and work on your Margin Gap
5: Make each stock line pay its rent
6: Measure & match to budget staff costs
Effective Merchandising &
Marketing
The Grand Pan
Look after your individual stocklines
and the Grand Plan will look after itself