Planning For Cash Flow – Points To Consider

Money comes in and money goes out in businesses. It’s a fairly simple equation, yet the complexity of managing retail or wholesale cash flows simply is not so easy. There is a lot to consider. To help kick start your cash flow analysis, make sure you are covering the below details.

[tweetmeme]1. Monthly fixed expenses. Yep, that’s right – fixed expenses (sorry, you just can’t avoid this in retail). You can count on these every month. Rent, phone, utilities, insurance, payroll, office supplies and much more are likely to make up these expenses. Track these expenses and plan accordingly so that you aren’t caught short of your payments.

2. Sales per month. In order to pay your bills, you need to be making sales. Track these by day, week and month. What comes in (point 2) and what goes out (point 1) each month give you your starting monthly number for the following month.

3. Negative numbers. It happens, unfortunately. If you spend more than you make, you are in the hole. If you can start your business with a savings for months like this, you can (hopefully) stay afloat without having to borrow money or sink into a deeper hole. The reality is, many new wholesale and retail businesses have a few bad months, so planning for this in advance is advised. A six months savings based on your fixed income is ideal. One year is even better.

4. Inventory buys. You can’t make sales without buying adequate product. Control your buys by using an open to buy system with a controlled amount of dollars allocated based on needs, months and current inventory. Avoid the temptation to over buy!

5. Be responsible with due dates and credit. This means never pay a bill late! And always do credit checks when planning for someone to pay you… you don’t want to eat their mistakes in poor cash flow planning.

The ultimate goal is to keep your in flow better than your out flow. Managing this is a job – and even if you love what you sell and hate doing the math to stay on top of it, you have to. Or hire someone else to do it. At the end of the day, this is what will keep your business alive.

For customized details on cash flow or to inquire about how you can get unique help on your business, contact Retail Minded at nicole@retailminded.com.

Retail Math Formulas – A Basic Overview

Love math? Hope so! If you are working in retail at any level, math will definitely be a part of your responsibilities. From counting inventory to managing your open to buy, numbers will be a big part of your day. Below is a break down of the basic math formulas retailers should know in order to run their business’ effectively.

Cost of Goods + Retail Markup = Retail Price

Retail Price – Cost of Goods = Markup

Retail Price – Markup = Cost of Goods

Beginning Inventory (in $ or Sku Count) + Purchases – Endoing Inventory = Goods Sold (in $ or Sku Count)

Total Sales – Cost of Goods = Gross Margin

Gross Margin $ / Average Inventory Cost = Gross Margin Return On Investment

Net Sales / Average Retail Inventory (Sku Count) = Inventory Turnover

Gross Sales – Returns & Allowances = Net Sales

Projected Sales + Projected Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory = Open to Buy (OTB)

Units Sold / Units Received = Sell Through %

Beginning of Month Stock / Total Month Sales = Stock to Sales Ratio

Understanding The Retail 4-5-4 Calendar

Many retailers follow a calendar known as a 4-5-4 calendar. This calendar, originally introduced in the 1930′s and began to be used commonly in the 1940′s, is beneficial for many reasons. Among the most important is that it provides a more consistent month flow versus the standard calendar, where weekends and days of each month will vary each year. The 4-5-4 calendar, however, provides the same number of weekends for comparable months, therefore allowing a more accurate report of sales. Because weekends tend to be heavier in sales for retailers than weekdays, making sure there is some routine to the annual reporting of sales – including what day of the week the sale is made – is extremely important.

The calendar known as 4-5-4 divides the year into months of 4 weeks, then 5 weeks, then 4 weeks and so forth. Beginning on Sundays and ending on Saturdays, it also ensures holidays are lined up and like days, such as a particular Wednesday, are lined up so that sales reporting can be done accurately.

As effective and beneficial as this calendar is, there is one problem that it brings to the table. It only covers 364 days. The extra one day that isn’t covered on the calendar is easily managed, though, by proper bookkeeping completed by each unique retailer. During Leap Year, though, retailers may opt to add another week to the calendar – though some retailers ignore this altogether. When a 53rd week is added, you simply push your weeks back by one to compare to the previous year. Essentially this would mean you would ignore the first week of the year. It also gives retailers and vendors a great reason to get excited – more time to meet annual sales goals!

In addition to allowing sales to be reported more accurately, there are two more valuable reasons to use the 4-5-4 calendar. The first is payroll. This calendar can help guide you in your payroll decisions and help manage your accounting. The second additional reason is inventory control. With a balanced calendar, taking inventory and tracking inventory can be done more accurately when completed routinely.  

While it’s common for large, corporate stores to use this calendar, not all independent retailers have introduced this to their stores. Most retail software systems have this calendar integrated into their systems, however some small business owners still track sales the old fashioned way (pen and paper or their own excel spreadsheet). Certainly there is not a right way to do this – only you can determine that for your store – but there are easier ways to manage your business. This calendar is definitely one of them. A great tool for retailers, if you aren’t following the 4-5-4 calendar already, you should consider how it may be helpful for you.

Drop Shipping – Is It Right For You?

As small business retailers and wholesalers, you know just how valuable every dollar is to your business. Because of this, as well as our struggling economy, I encourage you to consider dropshipping if you have not already.

Dropshipping can be defined and understood in a variety of ways depending on who you are talking to. But for boutique store owners and small business wholesalers, dropshipping generally refers to when orders are shipped only once placed by a customer at a retail store and can be sent as single unit or more depending on the customer’s order. For example – if you are a children’s store owner and sell crib mattresses, you would only order a mattress from your wholesaler once a customer has ordered one from you. The customer would be informed about the delivery time schedule and typically would pay upfront or at least 50% when the order is placed. This gives you, as the retailer, the opportunity to then place the order with funds to cover your purchase while also giving the wholesaler the opportunity to make a new sale.

As a wholesaler, we understand that you may prefer to write larger orders at once, such as selling six mattresses instead of one at a time, but to consider dropshipping may add benefits to your business that you would not have otherwise.

Advantages For Wholesalers Who Dropship

Dropshipping introduces a whole new business to wholesalers once they establish it and get it in place. A few advantages include:

1. New retailers are more likely agree to your dropshipping terms and then sell your prodcut as a result of dropshipping. Particuarly in this economy, retailers are cutting back on larger orders and looking for products that bring value to their store but that they can also afford. This allows for you to get in to retailers you may not otherwise.

2. Higher priced and larger scaled items are great products to consider for dropshipping. Retailers have to consider not only in dollars, but their space. When you give them a reason to bring your product  into their assortment without an initial, big investment, it’s a win-win (assuming your product sells, of course). In addition, if you offer a larger product, such as a headboard, it allows your retailers to still carry you without holding onto large inventory in their often small spaces.

3. You can typically charge more for shipping and other expenses with dropship items. Because you aren’t processing a larger order at once, need to mail each individual item seperately and have to deal with all the other logistics of an order for one single purchase, your processing and shipping fee can be a bit higher. Don’t be too extreme here, though. Cover your actual costs and maybe cushion yourself a little for your extra time.

4. Retailers may buy your product in larger quanities over time if they see the value it brings to their store. Start with dropshipping and give them an incentive if they purchase more than one product at once. 10% of second item, 15% off all others. Or possibly six or more items include free shipping. Your call. Or just dropship and call it a day. Whatever makes you happy. But as a general rule, dropshipping costs more on average than if bought in larger orders. AKA – you make more!

5. Customized items are great for dropshipping since you can only get one at once. This just makes sense – period.

Setting Up Your Dropship Terms

Make sure that when you set up a dropshipping program with your business, you have very clear, detailed terms written out that any retailer you sell to understands and signs an agreement to. Terms should include the following:

1. Retailer pays for their own in store sample unless you feel otherwise. This is a fair scenario since they will likely use or sell their store sample at one point anyway. If you have marketing collateral to support your product, you should provide this without any charge. For example, if you offer customized products, include a little Look Book with choices for customers to review.

2. Retailer provides credit card number for all orders to be processed through upon placement. This should be in your files and approved for credit prior to retail agreement.

3. Retailer pays for shipping per order unless determined otherwise. Typically, the retailer will bill this to their customer anyway. Another idea is to have the product shipped directly to the customer.

4. Deilvery timeline is discussed and understood prior to retail agreement being signed. This gives you security in delivering your products according to your production timeline. Be realistic here – 6 weeks is a long time for most items, but practical for some. Determine what is best for you.

5. Make sure all these details are written out in an agreement that is signed by your retailer. Give them a copy with your contact information and necessary order form details as well as retain a copy for yourself. Note – having an organized ordering system in place with your agreement will make the entire transaction easier to manage. Include details on tax, shipping, cancelled orders, returned products, right to modify agreement and more.

A List Of Some Dropship Wholesalers

Retailers, this is for you! Below are some wholesalers who offer dropshipping. Wholesalers who still aren’t on board yet with the idea? Check out your competition (in no particular order)!

Victoria P. Zurcher Designs - Stationery and Gifts – www.victoriapzurcher.com

Just Be Products – T-Shirts and More - www.jb-justbe.com

Artist Jeff Cane - Angel Artifacts in Prints, Candles, Charger Plates and More – www.AnEnglighManInLA.com

Coco Company – High End Baskets and Decorative Accessories – www.coco-company.com

Vintage Body Spa – Bath and Body Products – www.vintagebodyspa.com

PurBliss Candles – Soy Candles and Wedding Favors - www.Purbliss.com

Kt Steppers – Customized Step Stools – www.ktsteppers.com

Vogue Fabrics – Fabric Home, Crafts and More – www.VogueFabricsStore.com

Yeni Bath Arpons – Bath Aprons For Babies And Dogs – www.yenithing.com

Barcelona Bath and Body – Bath and Body Products – www.barcelonabathandbody.com

Three Peas - Children’s Fashion Apparel and Accessories – www.threepeasco.com

BowWowzerZ – Dog Collars, Leashes, Cat Accessories and More – http://www.etsy.com/shop.php?user_id=5297476

January 09 Retail Sales Up 1%

Great news for retailers! There is hope that retail will survive in our struggling economy. Government research was released Thursday, February 12th, that stated that retail sales were unexpectedly up 1% in January. The Commerce Department stated that this is the first time in seven months that retail sales have rose, offering retailers hope that consumers are shopping.

Reuters had expected January sales to be down by 0.8% for January, so this welcome surprise has people talking. Helping to credit this increase was the significant amount of sales taking place in January from marked down holiday items and post-holiday discounts.

To keep this momemtum alive, make sure to keep your sales going and markdowns moving. Customers aren’t buying too far in advance like they use to, therefore spring items aren’t just yet on their must have lists. But shoppers are taking notice of sales and looking for deals out there. Continue to offer them while still getting your customers excited for spring. One idea may be to offer an additional percentage off a sale item with the purchase of a “just arrived” or spring item. Be creative and be proactive! There are customers shopping – you just need to make sure they are shopping with you!

Do Designers Need “Look Books”?

Often my designer and artist clients ask me if they need to invest in developing a “Look Book” as they prepare to communicate with retailers. There is not a flat answer I can give to them in regards to this since the advice I share with them is specific to their individual product assortment, retail target market, and budget.  That said, I have outlined details about Look Books and their value to wholesalers so that if you are considering to create a one, you can also consider the points below.

What Is a Look Book

To begin, a Look Book is a book that is similar to a portfolio, however it represents a product line rather than providing visual samples of one’s work history. Look Books are used as visual aides in replace of the product, however they are often presented to buyers with the product, as well. The purpose of a Look Book is to provide a “story”, “feeling”, or “inspiration overview” of the product assortment through photographs of the product you want to sell.  Some have lifestyle photos and can be very graphic while others use fashion models to showcase their product and yet others are sleek and simple with no models at all. The creative flexibility of how to show your product in photos can be very appealing to designers.

Look Books are often professionally bound with glossy photos and little or no words included in them while others are presented in three ring binders with plastic portfolio cover sheets. The presentation will vary in design, however the content will always be primarily photos.The details of the product are sometimes included, but more often than not these details are outlined in the Buyer’s Packet instead.

Who Needs a Look Book

While there is no clear answer to this question, it is common for higher priced products, luxury goods, and one of a kind items to be showcased in a Look Book. Not meant for largely mass produced goods and inexpensive items, a Look Book is meant to showcase products that need a bit of a push to sell. If you are a jewelry designer who offers one of a kind pieces, a Look Book offers a great outlet to showcase some of the best work you have done. Meanwhile, if you offer customized art or designer handbags, a Look Book can provide you with a creative way to tell your product story. There is more flexibility in the creation of your Look Book versus a line sheet or other contents of a Buyer’s Packet, therefore as a designer you may have more fun with this presentation.

Many new wholesalers in the marketplace include Look Books to help push their product. Since competition is tough, it can often be more tough for new designers/artists/wholesalers to position themselves in their respective marketplace. Using a Look Book will certainly add to your pitch, offering a great outlet to tell your story since you will not always have the opportunity to do this face to face.

Presentation of a Look Book

The presentation of a Look Book is ultimately the decision on the designer, however it should be clearly understood that this presentation is also a reflection of the designer/artist/wholesaler themselves. That said, I always suggest presenting Look Books in a polished and professional presentation if you are going to take the time to create one.  I realize as small business owners it can tempting to cut corners everywhere you can, but I suggest leaving the three ring binders at home, as this reflects a college student’s project versus a professional presentation. Instead, considering simple and inexpensive binding techniques such as book stapling, coils, and book binding will offer you a professional presentation on a budget.

Final Thought

A Look Book can offer a sneak peak to your collection, as well as it can tell a story about your product assortment. Whatever the purpose is that you feel a Look Book can contribute to your line, remember that a complete Buyer’s Packet is more beneficial to you as a wholesaler. A Buyer’s Packet should include a line sheet with photos, pricing, designer/artist overview, introductory letter, and order form. These essential pieces, if done correctly and presented well, can sell your product or at least get you a conversation with potential buyers. Be realistic with yourself as to whether or not you really need a Look Book or if the fancy image of it is selling you on the idea of producing one yourself.

A final thought – Budgets are tight in all aspects of retail these days, so linking potentail buyers to your website with an “Online Look Book” may be something for you to consider instead, therefore saving you costs yet also offering retailers a larger view of what you have to offer outside of what your Buyer’s Packet represents.  Another option is to include a disk in the Buyer’s Packet that offers a digital Look Book. Both of these options can save you expenses while also providing an extra something to your retail accounts and potentail retail accounts.

Pricing Your Products

Many small based wholesalers struggle with how to price their product. For starters, they often neglect the retail cost and only think about the cost at wholesale, which is the cost for the retailers. Unless you solely do craft shows and such, this is not an effective way to price your product. Determining the price at retail that your products will be is an extremely important step in your overall marketing strategy. There are many factors to consider when doing this and all need to be evaluated thoroughly to ensure that you are making an educated and strategic decision on your final price points.

Cost of Supplies

The first thing you need to consider is how much the actual cost is to make your product. This includes every raw material used from start to finish to produce your goods. If you are not buying straight from the manufacturers themselves but still buying retail prices to produce your products, this should be something on your immediate to do list so that you can help control your overall costs.

Packaging

How you present your product will make a big influence on both the retailers you pitch your product to as well as consumers who may or may not purchase your product. It can be tempting to spend a lot of money on packaging since there are so many exciting options, however you want to be realistic with who your target market is, what your competition is doing for their packaging, and how much you can afford to invest in this. You should, however, not skimp out on these details since it is a valuable selling tool. Once your packaging costs are determined, make sure to consider this in your overall price decision for your product.

Your Time

If you ask me how much I’m worth an hour, I’m going to tell you way more than you would probably be willing to pay me. However, if you ask me how much I charge an hour, I’m going to give you a number based on my skill-set, my competition, and what the market rate is for my services. That said, you need to determine how much your time is worth and consider the realistic demand for what you are providing when determining your cost of time. This influences how much you can really add to the value of your product when considering final purchase price.  Be realistic with yourself, with the competition, and with the marketplace. This is not the place to get greedy.

Marketing Tools

Whether you hire someone to create your Buyer’s Packet or plan to advertise, you need to consider all costs that are involved in your marketing strategy when determining your price point. While it’s true that it takes money to make money, it’s fair to consider all of your costs upfront. This may also be an opportunity for you to review how you can cut costs to help improve your overall budget.

Location, Location, Location

In a perfect world, it would cost us nothing to find the space we need to produce our products. Rent should be free, right? Wrong, unfortunately. For some you, you are fortunate to be able to produce your products in your own home, however many of you need to rent space for the production of your goods. Take the cost involved in this, if necessary, and consider this in your final price point.

Labor Intense

If you are paying someone to help create your product or for any other reason, you need to consider these costs in your pricing. Make sure to be realistic both with how much you are paying someone as well as how much of this you can put back into the cost of the product at retail. Remember, as your business grows and changes, so will your cost strategies and pricing strategies.

Competition

Like it or not, our competition does have some control over us. Unless your product is so unique or one of a kind that competition does not matter, you will have to consider it when pricing your product. The fact is that consumers have a choice in what they buy, so you need to make sure your product’s price point can compete with what is already in the marketplace. There are thousands of other reasons that consumers make their purchasing decisions besides just price, however it is certainly among one of the top decisions. Make sure your price competes in the marketplace.

Wholesale vs. Retail

Now that you have multiple factors to consider when determing the price of your product, make sure to remember that if you plan to sell your product to retailers, you need to offer them a wholesale cost that will then typically double for the retail cost. This mean that if you determine something to cost $10, then at retail it will cost about $20. So if your wholesale cost does not reflect the cost your product should be at retail, you need to re-evaluate your pricing. I find that many small based wholesalers are not pricing their products according to retail, but rather according to wholesale since this is what they take home once they sell it to the retailer. You need to understand that once it’s sold to the retailers, you will only get reorders if your product sells from them. In addition, you don’t want your retailers to be forced to sell your product on sale if it doesn’t sell on it’s own, so pricing smart upfront will make a big difference down the line.

Final Cost

While the above factors are suggested to consider when pricing your product, make sure to include any details that may be specific to your product, production, product launch, and more. Ultimately the cost at retail should reflect the quality, the construction, the demand, and the desire of your product in addition to the necessary details such as cost of supplies, labor, and all other factors that went into creating your product. It takes time to establish a true product comfort level in many ways, including pricing, so be patient and realistic with yourself if you need to reconsider the different attributes to pricing on more than one or even a hundred occasions. As your business grows and changes, so will your pricing considerations. It will always be another check to do on your never ending to do list.