Retail Math – Financial Measures

What are the financial measures that you should know and understand how to impact? Let's take a look at some basic metrics and how they are calculated.

GROSS INCOME = Sales minus the Cost of Goods (Includes actual production costs, shipping.)
The book costs $ 10 to make. It retails for $ 20. $ 20 – $ 10 = $ 10 Gross Income

GROSS MARGIN = Gross Income divided by Net Sales
$ 10 / $ 20 = 50%

What effects this gross margin directly? Markdowns and shrink! Selling the product prior to any markdown or promotional dollars is how the company makes the most money. Certainly, the store teams need to focus on selling the goods before the retail price is reduced; however, when that does not happen it is critical to sell it with that first financial impact. If additional markdowns are necessary, the gross margin can be reduced to the point of elimination.

Keep in mind that this does not take into account any additional costs like YOU! All of the operating costs are taken into account after this. The field leadership should be focused on selling goods as quickly as possible for their company's financial health.

UPT or IPT = how many items or units sold in a single transaction. This can be calculated simply by: Total Units Sold / # of Transactions

200 Units Sold / 80 Transactions = 2.5 UPT

Average Dollar Sale or ADS = the average sale produced in a single transaction. This can be calculated simply by: Total Net Sales / # of Transactions

$ 5000 Sales / 100 Transactions = $ 50 ADS

Conversion = the percent of customers sold. This can be calculated simply by: (Total Transactions / Total Traffic) x 100

(20 Transactions / 100 customers) = .2 x 100 = 20% Conversion

SPH or Sales Per Hour Productivity = the sales generated per payroll hour used. This can be calculated simply by: Total Sales / Total Hours Worked

$ 3000 Sales / 30 Payroll Hours = 100 SPH

These are some basic formulas that all managers should be able to calculate. Most are provided for you in today's technology but to impact them you should understand them. Next up in retail math will be Forecasting. Go seize your results!

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