Retail Profit: Sales Down 23%, Profit Up 22%

So what I wanted to do is really delve into some of the client results and talk a little bit about how we can find ourselves in this situation where somebody is down on the year in terms of sales, but they are up on the year in terms of profits.

So one of the things that we are taught, or one of the kind of accepted wisdoms in the business world, is that a big sales number in a month is a good number, and a bad month is if you have a small sales number.

But I really do believe that is the vanity part.

Most independent retailers were never taught to actually run their numbers, thinking about turnover is vanity and profit is sanity.

And a lot of the time, what we're doing with our Stock Doctor clients is we are working on ways to really not just look at their sales.

And it was actually quite unusual for this particular client to be down on the month against the year.

But again, what we're really looking at is not so much are their sales going to be okay, but we're really looking at that bottom line, that profit.

So top line revenue can hide things that really matter.

Another example is a client that we worked with who had seen enormous growth in their e-commerce side.

Their bricks and mortar store, they also had an e-commerce website.

They had had huge growth on their online sales, and as a result, they had to really increase the amount of staffing that they had, people fulfilling online orders.

But they also were actually less profitable after their sales had grown.

So we delved into it and we dug into it, and what we found was that, as can sometimes be the case with e-commerce, especially if you're investing heavily in paid advertising, the cost of the advertising just wasn't offsetting, just wasn't washing its face.

It was actually losing money after all of the costs of the products and after all of the costs of fulfilling them, the extra staffing and so on and so forth.

In terms of your actual business performance, yes, having these big numbers up on the year can be really exciting, but ultimately it can hide a lot of issues.

It hides things like how much are you actually paying for those sales? How much are you paying for the stock that goes to creating those sales? And what are you left sitting on? What's unsold? It also doesn't really drill into how much did you outlay on stock, how much stock do you have tied up, which is basically cash just sitting there instead of you being able to access that cash and have a healthy bank balance.

So let's look in a little bit more detail into this particular instance of a client that was down on the year in terms of sales, but up in terms of profit.

When we looked at the detail, what we found was the number of orders that they had were down 13%, so there were fewer transactions coming in.

Now, typically, you wouldn't plan for this.

You wouldn't be aiming to have fewer transactions.

But what that was offset by was the fact that their average order value was up 21%.

So even though they had fewer transactions, they already had seen an offset in terms of their sales by their average order value being up.

We have to ask ourselves, what's better for you as a business owner? Fewer transactions with more money being spent on each one, or the same number of transactions but less money being spent? So, or indeed just everything staying level.

It actually can be better for your business if you're taking fewer transactions, but each transaction is more valuable.

The reason for that is that if you think about it, if somebody buys one item from you, it's actually not double the work for you to serve them or to bag up their product, to talk to them, serve them, take the payment, or if you're, it's online, fulfill the order.