This episode comes with a companion free download.
If you head over to resilientretailclub.com/numbers,
you'll get the guide to the three key numbers you need to know in your
business and how to calculate them.
Have you ever opened up your Shopify dashboard looking for one answer and
somehow ending up with 10 new questions?
Retailers don't have a lack of data problem.
If anything, they have the opposite.
They are drowning in information but starving for clarity.
I've worked with retailers who have dashboards, apps, reports, spreadsheets,
and notifications everywhere letting them know every single time they make
a sale, yet they still can't answer some very basic questions like, "Am
I making money?" "Am I on track?"
and "Is my stock healthy?" Today, I want to talk about cutting through
the noise and focusing on the handful of numbers that actually tell you
whether your business is healthy
Many business owners think that the solution is another app, another
report, another dashboard, and certainly we are all being sold
more AI tools every single day.
But the reality is that more information doesn't automatically
lead to better decisions.
In fact, too many viewpoints can actually make decision-making harder.
One of the things that I quite often see is founders who are
bamboozled by an excess of data.
They have got different tools that are telling them different things,
and the big question that's in their mind is really, "So what?
So now I know all of this information, I can see all of these different things,
all of these different elements, and ultimately, I still don't know whether
or not I'm actually making any money." They might be looking at Shopify reports,
Google Analytics, Klaviyo reports, Meta Ad reporting, accounting software.
They might be running third-party analytic tools, for example, endless
spreadsheets, looking at heat maps of their website, or getting notifications
or insights from all of the different tools that have added AI into it, and
again, still not really sure what to be actually doing with it, and which
numbers they should be focusing on most.
Many people will ask me, "When it comes to the… doing an end of month review
or an end of quarter review, what should I actually be looking at?" And the
goal here, really, I believe, is not to try and collect more information.
The goal is really to try and gain some clarity.
The first thing that I would suggest that you do is to actually simplify the amount
of tools and tech that you are using.
There's such a thing as tech creep, where you sign up for something, and then all
of a sudden you've actually paid for all of these different tools, these plugins,
these apps, and you might not even be using them, or you may be looking at them,
but still not really having your answers.
So I definitely recommend doing a bit of housekeeping.
If you have a tool or any piece of tool or software that you are using, then ev-
for every single one that you're paying for, I would suggest
that you ask the following: "Is this giving me information that I can't get
elsewhere? Am I actually looking at it regularly? And am I doing anything with
the information that it's providing?"
So those three questions will help steer you and help you look through.
If you've forgotten which ones you've signed up for, which no, uh,
judgment from me, I, I think it happens to all of us, definitely take a look and
run through all of your direct debits or your recurring payments in your business
bank and just ask yourself, "What is this?
Am I paying for it?
What do I even need it for?" Because, as I said, the danger is that too much
information can just cause overwhelm, and if you're not really using it, um,
it could just be adding to the noise.
The truth is that although we are being bombarded all the time by AI and
it can feel really overwhelming, it does also create some real opportunities.
So for example, Shopify Sidekick is a great AI tool that is allowing
people to actually ask using what they call natural language reporting.
So natural language reporting basically means that you can ask it
a question in a conversational way.
Prior to Sidekick coming in and having these capabilities, you would've had
to, if you wanted to know what your best sellers were, you would've had
to run your sales by product picked the time period that you wanted, and
basically run the report and then saved it in the version that you wanted it,
made sure it was showing you all the bits and pieces of information that
you wanted, and then saved that report.
They actually, even before that, Shopify, they had very fixed reports
that you couldn't really amend.
They then changed it last year to be much more flexible, but
maybe slightly harder to use.
But now with Sidekick, you can actually just go in and ask the AI Sidekick,
"What were my best sellers last month?
What was my sales margin last month?
Which products are underperforming?" So instead of building complex reports
where you have to get a lot of different pieces of information, you can now
actually use Sidekick or other AI tools for, as I said, that natural language,
so you can have a conversation with it, ask it the questions you might
otherwise have had to answer yourself.
So this also means that if even in the last six months things have changed,
there may be tools and subscriptions that you'd signed up for last year that now
they're duplicative of some of the AI capabilities within the tools that you're
already using on a day-to-day basis.
So again, I would really recommend that you run through and have a look at what
you're paying for and make sure that even in the last six months, has this changed?
Has it shifted?
Is this something that you still need?
Because a lot of these capabilities have replaced the need for more specific tools.
Are there any that you could cancel tomorrow without it changing or
affecting your decision-making?
So in terms of what you actually need, I've certainly seen people running their
businesses off their accounting software, their POS system, whether that's Shopify
or something else, and a spreadsheet, which I'll come onto more later.
So it doesn't always have to be complicated and fancy for
you to understand all of the information in your business.
In fact, I would say the bigger issue tends to be not that you don't have the
right tool for the reporting, but that the data that's in your system is not as
detailed as it could be to start off with.
So moving onto then, what questions are we actually asking to try and
define the health of your store?
The first question that I recommend that you ask yourself on a regular
basis is, am I making enough money every time I make a sale?
In other words, it's not always about revenue, it's about your profit.
Your sales margin, the difference between what you buy something for
and what you sell it for, is the absolute foundation of your business.
It's the engine, the profit engine, that drives everything else.
Everything else that you pay for in your business has to be covered by
the difference between what you buy something for and what you sell it for.
So you need to understand your monthly sales margin.
This is one of the most important numbers for you to look at.
So your monthly sales margin is expressed as a percentage.
So for example, if you are VAT registered and you sell something
for £12, if you take the VAT off, then that's £10 excluding VAT.
If you're paying £5 for that, then you are paying £5 and you have £5 profit.
So that is five divided by 10 your price without tax, and that is a 50% margin.
So you want to be really clear on what that looks like for your whole business.
And the way that you would do that is you would look in your… You would
look at the sales that you took in the last month without tax, and you
would take off all of the product costs associated with those sales.
Now, there are various different ways of doing this.
If you have got all of your cost prices loaded into Shopify, for example, if
you're using Shopify, you are able to ask the sidekick, "Tell me what my
sales margin was last month," and it should give you an accurate answer.
For some people, it will be a question of looking at their sales in their accounting
software and then comparing that to the COGS, or the cost of goods sold.
Now, the only issue with that is that depending on the way that your
accounting software is set up, the cost of goods sold that you're seeing may not
actually reflect the cost of goods sold for the products you sold in that month.
It may just be that you spent more money on stock that month, and therefore, your
margin ends up looking a little funny.
So if you're not sure how that cost of goods sold is calculated,
check that with your accountant.
But for many people, the best place for them to get this number is to
make sure that they've put all of their cost prices into their point of
sale system, and then they are able to query the total sales that they
took minus the cost of those sales.
And that is a very, very important number for you to have a handle on.
Because if your margin is deteriorating or it's, you're not really getting what
you want in terms of margin, then your business becomes harder and harder to run.
So what do you do if it's not very high?
Well, first off, for most businesses that buy in stock from other people,
you would expect your, your sales margin each month to be around 50%.
So that's what, your, your kind of starting point.
Now, if it's not a 50%, it could be eroded by things like discounts,
promotions, clearance activities.
Sometimes that's just the way it is.
If you're running a big sale, you're likely to end up in a situation where your
sales margin is lower than 50% that month.
It could also be that your supplier costs have gone up and you have not increased
your prices accordingly, and therefore, your margin is getting squeezed.
It's okay for your margin to dip temporarily.
You may have one month of the year where you really push into sales that
your margin is lower than normal.
But what's not good is if it is continually looking low and you're
not doing anything to address it.
So make yourself check it once a month.
If you don't have all your cost prices in, yes, it is a, an admin
job to get them all loaded in, but it will bear a lot of fruit.
It will really help you understand a lot more about your business.
And make sure that you're checking your sales margin once a month.
Is it stable?
Is it improving?
Or is it declining?
So you wanna make sure that you're checking that.
And again, you wanna make sure that you're doing things to
try and improve your margin.
So for example, reviewing your pricing or reviewing how many discounts that
you're giving out or reviewing how much of your sales, how many of your
sales are actually coming from full price sales versus sales on a discount.
And all of those things will help you keep an eye on that sales margin.
But that, for me, is the number one number that you should be looking
at each month in your business
The second question that I would recommend that you ask yourself is are
you selling enough to cover your costs?
This is known as a breakeven analysis, and it's one of the most
underutilised or underrated numbers in retail.
Your breakeven point basically tells you how much profit you
need to cover your fixed costs.
We do this with every client that we have.
When we work with clients in Stock Doctor and Retail by Design, we ask people to complete this
breakeven analysis, and we review it because it is so illustrative in terms
of what's going on in the business.
It helps us understand is the business profitable, is the business… Or
what number does the business need to be at to be profitable?
And it answers a lot of questions.
So if you've been feeling unsure about how things are going in
your business, then do definitely check out your breakeven number.
In my book, Tame Your Tiger: How to Stop Your Product Business Eating You Alive, I
go into detail in how to calculate this.
But effectively, what it's doing is it's looking at based on an average
monthly sales, and your average monthly costs, and your average monthly
profit margin, are you making enough sales to cover your fixed costs?
So without your breakeven analysis, you don't necessarily have a really clear
idea of what your sales need to be.
Sales can feel a bit random.
So if you have a 10,000 pound sales month, is that good, is that
fantastic, or is it really terrible?
The other thing I will say is that sometimes when I'm working with a
client, we'll run the breakeven analysis.
Well, this happens fairly commonly.
And actually, the business is nicely profitable.
There's a nice buffer, and it should really be something that feels
quite comfortable for the owner.
But what they are doing is they're actually not recognising that the
business is quite comfortably profitable.
They're still really stressing because they don't have that visibility.
They don't know that they definitely have got all of their
costs covered by the sales.
So without your breakeven, you don't know whether you're on track.
You don't know whether you're falling short.
And you also can't really see if any new costs that you want
to bring in are affordable.
So for example, one of my favourite uses for a breakeven analysis is
when we're able to say, "Okay.
Well, I want to bring in extra cost.
I want to bring in this person to help with the business.
I want to start paying for advertising this way." And without
the breakeven analysis, we can't see what the sales increase needs to
be to justify that additional cost.
So having it set up is really, really helpful.
And then once a month you can have a look and see how does that
compare to what I actually did.
Did I do the sales that I needed to do?
Was my profit margin where it needed to be?
And have, how much have I actually spent compared to what
I think my average costs are?
And therefore, am I working towards a profitable business model or not?
Profit and loss statements exist.
Profit and loss is something that you can also look at on a month-by-month
basis inside your accounting software.
This will give you somewhat of a similar idea whether or not you made
a profit or loss.
Again, the only thing that gets a bit tricky with your profit and loss inside
your accounting software is when you have big fluctuations in when you're
spending money on stock, and that can throw it off and make it hard for
you to understand whether the fundamental business model is profitable or not.
So therefore, the breakeven analysis, which assumes a sort of even amount
of stock purchase throughout the year, which I know is not realistic,
but it's a good diagnostic tool.
That is a slightly different thing than a profit and loss statement, and it can
help you understand fundamentally if the framework of the business is healthy.
And then the third question that I would recommend that you ask
yourself on a regular basis is, is your stock turning fast enough?
So this, for me, is one of the most important numbers
that you need to look at.
And again, if you're not currently keeping records of your stock, then
I highly recommend that you start because it makes it so much easier
for you to keep an eye on this.
So stock is cash.
Cash is stock.
If you think about every product in your business as a 10 pound note, if it's a
10 pound product, think of it as a 10 pound note, you can really clearly see
where the money is in your business.
And the longer it sits on your shelves, then the longer your money is tied up.
So stock turn matters because the faster your stock turns,
the healthier your cash flow is.
And the slower the turn, the more pressure is on your cash.
So if this is not something that you're watching, you can sleepwalk
yourself into a cash flow problem.
A simple metric to measure is how much stock do I have, and how
does that compare to my sales?
The formula that I like to look at on a monthly basis
is the number of weeks cover.
So weeks cover is your stock value divided by your average weekly sales.
So for example, if you have £150,000 worth of stock and your average
expected weekly sales for the next 12 weeks is around £10,000 a week, then
you have got 15 weeks worth of stock.
Now, this is a theoretical number because we all know it's not exactly like your
stock would last for 15 weeks because you'd be selling down to nothing.
But it's a really good yardstick for you to measure and to understand how
much stock you've got in your business and whether or not it's going to be
Whether or not it's growing and therefore eating up more cash, or
whether or not it's decreasing and any stock clearance activities that you
are doing is act- are actually working.
So most retailers will know what their sales are, but they don't necessarily
know what their stock number is.
And that can cause stress because they can't see if they are, in fact,
keeping an eye on turning their stock quickly or whether or not
they are just letting it pile up.
So if you don't have a stock plan, then you can start by simply
monitoring your stock levels every month and working out is my stock
cover going up or is it going down?
It's another reason why it's a great thing to have a sales plan because
if you have a sales plan, you'll know what your forecasted average weekly
sales for the next 12 weeks are.
If you don't have a sales plan, you're gonna have to estimate that number.
So I would set it up, set up your sales plan, work out each month what your
average weekly sales for the next 12 weeks coming up is, and then use that
to calculate how much, how many weeks worth of stock that you have got.
And then that is one number that you can look at each month and ask yourself,
is this going up or is it going down?
Now, you will typically carry fewer weeks worth of stock in peak times.
So when you're in the run-up to Christmas, you would expect your number of weeks of
stock to be lower because you're expecting a big sales increase, for example.
And then in January or February, then your stock will mo- most likely be turning
slower than it is at the peak times.
However, you don't want it to get too out of hand, and you wanna make sure it's not
increasing and creeping up year on year.
So all of those reasons are the perfect excuse to take a look once a month at
how much stock that you've got and to make sure that you have a record of
that So my slightly old fashioned view is I still love a spreadsheet because
it's one place that, that you can record these numbers, it's one version of the
truth, and it's easy to review trends.
Yes, you can calculate a lot of this information by asking Sidekick,
you can get reports run, you can get plug-ins and tools that will
look at some of this data for you.
But if each week you note down in a spreadsheet what your weekly sales
are, and each month you note down what your sales margin is, your sales
versus your target, your sales versus last year, the stock value that you're
currently holding, and the number of weeks cover, then you have got one
place that you can very quickly see, in seconds, how the business is doing.
So make sure that you're building something that is for you.
This is for you.
It's not for an investor.
It can be extremely simple.
In fact, I would much rather that you wrote something down on a Post-It note
and stuck it on your screen than you went ahead and created something that
was really complicated, was hugely difficult to keep updated, and also just
didn't give you that much information, or something that just put you off
ever doing it 'cause it took too long.
You want a dashboard that helps you make decisions.
Do I need to improve my margin?
Do I need to spend less on stock?
Do I need to take action to speed up my stock?
How am I doing against my breakeven analysis?
What do I need to do to keep moving this business towards profit?
You don't need to drown in data, you just need to answer these three core questions.
Am I making enough profit on every sale?
Am I selling enough to cover my costs?
And is my stock turning enough?
So don't forget, keeping it simple can really help you take action, as opposed
to making it too complicated and then just getting stuck in the complexity.
So why not take 30 minutes, go through all of the reporting tools that you're paying
for, work out which you actually need, and then create one simple place to track
those three key stats, because clarity beats complexity every single time.
If you want to know how to get a handle on the three key numbers that you need
to know in your business, then head over to resilientretailclub.com/numbers and
download my free guide of the key numbers that you need to know and how to get them.
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