Shop Talk: Practical answers for tough business questions
Question: Last year I went overboard in my spending and purchased way too much merchandise for the holidays. It took almost three months for my inventory to sell down to a normal level! I want to avoid a repeat scenario. Is there an easy way to set up a holiday budget?
Answer: You can use many methods to create a holiday budget. One of the easiest is to total your January-through-June sales and compare this total to the previous year’s sales for that same time period. Are your sales up or down? Look at the percentage of increase or decline and apply it to last year’s holiday sales to forecast for this year. Then multiply that number by your average cost of goods sold (COGS) percentage to come up with a budget figure for the upcoming season.
For example: If you had sales of $100,000 between Thanksgiving and the end of the year last year and your sales are up 10 percent over last year’s first two quarters, you can reasonably predict you’ll do $110,000 in sales this year during the same time period. If your average COGS percentage is 55 percent, your budget for holiday ordering should be approximately $60,500, an increase of $5,500 over the previous year.
First published in Vol. 28 No. 5 of Retailing Insight. © 2014 Continuity Publishing Inc. All rights reserved.