Shop Talk: Practical answers for tough business questions
Question: I want to impress upon my employees how important it is for them to be aware of operating costs and try to keep them at a minimum. I also want them to understand how much money it takes to operate my store, but I don’t really want to hand them my financial statements. How can I accomplish this?
Answer: Good for you enlisting your employees in this process and being willing to educate them. They can be your best source of new, cost-saving ideas!
Probably the easiest way to talk about your store financials is in picture and percentage form. Create a pie chart on a poster board and color in the pieces of the pie to represent various percentages of expenditures. Say the pie represents $10,000 in sales. The largest segment will be your COGS (Cost of Goods Sold or merchandise costs—usually between 48 and 56 percent). The payroll and occupancy costs most likely will be next. After that, you may have advertising, insurance, office supplies, and so on. When you get down to expenses below 2 or 3 percent, you can lump them into a category called “other.” Make sure you also have a pie piece for profit, even if it is very small or a negative percentage.
This way, you can talk about the business in percentages without sharing actual numbers but impressing on employees that you need their diligence and assistance in keeping costs they can affect to a minimum. They also may see the size of the profit pie is smaller than they assumed and will be more aware of the challenges you face as an owner.
First published in Vol. 26 No. 3 of Retailing Insight. © 2012 Continuity Publishing Inc. All rights reserved.