Over our last few articles you will have completed the steps in determining your long-term required wealth, the level of gross profit and the sales you will require to achieve this, the amount of inventory that will be necessary and in which areas you will need to carry this inventory.
In our final article in this series we need to focus on the last step.
Monthly Sales Analysis
Following our example of ‘GAP’ Sales of $1,062,265, we now need to break the annual budget down into realistic monthly targets.
Because not all months are created equally we need to divide the annual budget into relevant ‘seasonal’ proportions. For example, December sales for most stores represents between 20-22% of total annual sales whereas other months can be as low as 5%.
We suggest you look over at least three year’s sales history trends to help even out any exceptional highs or lows – see Table 1 below.
In this table you will notice that for the month of June (highlighted), sales have ranged from 6.5% in 2011 to 8% in 2013 with the average being 7.23%.
Therefore, if the average June contributes 7.23% of total sales then your budget for next June would be $76,802 i.e. 7.23% of $1,062,265 equals $76,802.
If you do not have history going back this far then go back as far as you can and draw your own conclusions. Alternatively contact us as we are able to provide information on industry benchmarks that may be a guide.
Please take into account any months with unusual trading patterns such as sale months, closed for refit, etc. as these can distort the normal seasonal breakdown.
Daily Sales Analysis
We would also suggest breaking the monthly budget into a Daily Budget. The easiest way to do this is simply to divide the total budget by the number of trading days. For example, if the budget for June is $76,802 and your store is open for 25 days, then your daily budget is $3,072 i.e. $76,802 divided by 25 days equals $3,072 per day.
Table 2 below shows what a monthly breakdown might look like:
If you want to strive for ‘Best Practice’ then your daily budget can be broken down between the sales team. For example, if Mary typically does 25% of the sales then her personal budget for June would be $19,201 or $768 per day.
Again, the easy part is setting the budget, the challenge is how to achieve it consistently.
1. Calculate the average percentage contribution made each month using three years historical sales data or industry benchmarks.
2. Divide you annual sales budget by the percentages in Action Step 1 (as per Table 1) to arrive at a monthly budget.
3. Get a calendar out and work out the number of days you will be trading in each month.
4. Now divide your monthly budget by the number of trading days (as per Table 2) to arrive at a daily budget.
5. We recommend you split your budget between the sales people so you can manage their activities and measure their results.
6. Implement a daily team meeting (we have notes on how to facilitate these daily meetings available free if required)
7. ‘TMT’ it. T est, Measure and Tune your strategies and results.
If you are unable to determine an average for your store, or you find any part of this task confusing, don’t hesitate to contact us for further information.