Updated: Oct 30, 2019
Audio version available above!
Now is the time we question our entire existence as retailers.
We just fought tooth and nail to get rid of the last bits of last season’s merchandise. The store is full of fresh new product for this season. We’re locked & loaded and ready to go!
But why am I so antsy?
Why do I feel this invisible pressure that I can’t pinpoint?
What’s going on?
Objective look: the past
We just completed a successful season! And part of completing a successful season includes selling merchandise for less-than-ideal margins. Nope, don’t want to think about that again...but it’s part of retail! We must cash out on product (and sometimes at gut-wrenchingly low margins) to mitigate the risk of owning stuff that sticks around for-e-ver.
Those low margins are a thorn in our side, but look at the big picture here. That merchandise ideally made full margin for the first 80% sell thru and it sold at a discount for the last 20%. It’s all a game of averages. Markdowns are a part of business and we should expect to take markdowns as a way to achieve 100% sell through.
Rejoice in the cash that’s in your bank account now and not trapped in your inventory.
Objective look: the now
Last season’s cash has paid the bills and (hopefully) there is some left over. The new season is emerging--the weather is changing and we’re on the bleeding edge of having the latest, newest, and greatest merchandise for shoppers to purchase.
These new receipts are daunting--that’s a lot of new stuff to have waiting in accounts payable…! We know it will sell--we go through this freak out moment every year. But why?
Traffic. Traffic count naturally takes a downturn during this time of the year. It feels sluggish.
Our conversion (the percentage of total shoppers that buy something) percentage rate might stay consistent, but when total traffic decreases, the number of purchases also decreases. A direct reflection of why revenue takes a dip.
Another component of frustration is that shoppers are searching for promotions and deep discounts--and they’re quick to offer this feedback to us. They’re taking advantage of the retailers that are still working on clearance, typically at 60% off or more. Sorry shopper, we’ve already sold through that high risk ‘asset’!
Objective look: the future
Shopping is seasonal...traffic patterns change. It’s not rocket science! But why are we still so uneasy about it? It can be hard to define unless you’ve proactively planned for it this situation for the future...
Yes, breakeven. Breakeven is the point that your sales have paid for all the expenses. Breakeven is the point that you start generating extra money. Break even is the point that you become profitable.
If revenue doesn’t surpass your breakeven point...then you don’t breakeven. You lose money. You lose cash. You’re in the red.
Fear not. Hear me out.
Think back to the merchandise sell through example earlier. Most of the time (80%), business is profitable. But sometimes, we have to take a hit on the chin and lose some of that profitability. And it's expected part of doing business in the long run.
Sometimes our operations behave in the same way. We make full price profit (woo!) but we have to be smart about these profits. We have to save them for a rainy day. Like when we don’t make enough revenue to breakeven.
Knowing the breakeven point of your business is powerful. (Click to figure your breakeven point now)
Here’s an example:
Monthly revenue is recorded in blue. Our average monthly breakeven point is recorded by the red line.
What does this mean? There are months that we far surpass breakeven, months that we barely make it, and months that we don’t breakeven (February and October).
We’re not going to throw in the towel just because February and October aren’t profitable! The lesson is, with a little bit of knowledge and planning, we can save profits from profitable months to use in those tougher months.
Do you need help figuring your breakeven point? Grab our free tool here.
Reach out to our team here to learn your breakeven and to ask all of your cash flow questions.