Understanding Selling Cost and Its Impact on Retail Productivity
In the competitive world of retail, a keen understanding of your business’s selling costs can pave the way to improved productivity and profitability. For Indie retailers, especially those operating brick-and-mortar stores, calculating and optimizing selling costs is crucial. Selling cost reflects the relationship between the cost of selling a product and the revenue generated from sales. For a typical Indie retailer, this is calculated using the formula: selling payroll/net revenue. Breaking down this data per salesperson not only provides a clearer picture of individual performance, but also highlights opportunities for operational improvements.
The Importance of Selling Cost
Consider a scenario where your store’s weekly net revenue stands at $15,000, while your selling payroll is $2,000. The overall selling cost is $2000/$15000, equating to 13.3%. By further breaking this down per employee, you can identify the cost of sales for each individual in your team:
Salesperson
Net Revenue
Payroll
Selling Cost
Salesperson 1
$5000
$300
6.0%
Salesperson 2
$4000
$600
15.0%
Salesperson 3
$6000
$1100
18.3%
Total
$15000
$2000
13.3%
Typically, selling costs should range from 6% to 12%. While higher percentages can be acceptable if coupled with sufficient initial markups and net margins, continuous evaluation and adjustment of these costs contribute significantly to healthier margins.
Managing Costs as Variable Expenses
One advantage of focusing on selling costs is the ability to manage them as variable expenses. This strategy allows Indie retailers to sustain higher wages and reward employees based on performance. When sales are directly tied to compensation, both employee and employer benefit from a system where creating more sales leads to better pay without penalizing employees for their successes.
Compensation and Breakeven Analysis
To illustrate, let’s analyze a compensation model where salespeople earn $20 per hour. To achieve a breakeven selling cost of 8%, they must generate $250 of sales per hour over a 40-hour work week, meeting a revenue target of $10,000. Here’s how it breaks down:
Hourly Rate
Sales/hour Breakeven
Commission Rate
Hours Worked
Base Pay
Net Sales
Performance Incentive
Total Pay
$20.00
$250.00
8.00%
40
$800
$10,000.00
$1,160.00
$960.00
In this model, sales staff receive not just their base pay, but an additional incentive – rewarding them financially while maintaining the retailer’s expense percentage. This direct link between performance and compensation creates a win-win situation, stimulating motivation and efficiency among employees.
Key Components to a High-Performing Sales Team
Measuring Success
The first step to building a successful sales team is through proper measurement of sales cost per person and overall. Analyze past data to set future goals, ensuring you’re tracking metrics such as conversion rates and average sales per transaction. Share these results with your team and continuously provide individual and group coaching to polish their skills over time.
Coaching and Learning
Regular coaching sessions bolster sales expertise within your team. Encourage learning and development by creating opportunities for staff to improve, fostering an environment of continuous growth. Investing in the skills of your employees has a direct impact on productivity and bottom-line results.
Recruitment Strategies
Another crucial component is recruitment. Dedicate time each week to scout the marketplace for outstanding sales talents and service providers. With adequate resources channeled into recruitment, Indie retailers can ensure they’re onboarding the right individuals who align with the store’s values and objectives.
Measure sales cost per person and overall regularly.
Set monthly and yearly sales goals based on past performance data.
Conduct weekly coaching and training sessions.
Invest 5 hours a week in recruiting top-tier sales talent.
Conclusion
Understanding and managing selling costs isn’t just about maintaining budgets—it’s about empowering your sales staff to operate at their peak performance, ultimately driving the business towards profitability. By approaching selling costs as a flexible, variable expense and using it as a tool for rewarding top performers, Indie retailers can create a work environment that thrives on mutual success.
Incorporating a strategic approach to measuring, coaching, and recruiting provides a robust foundation to foster a dynamic and efficient sales team. With dedication and the right resources, Indie retailers can significantly enhance their business productivity and profitability.
