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An effective store manager plans and calculates turnover, purchases and potential profits several months in advance. It is difficult to imagine managing a retail outlet without constant financial calculations designed to give an objective impression of the state of the store. If the business is launched, the question will be raised, how to calculate the profitability of the store? In simple words, this is the share of profit in revenue, the level of payback, and the success of the activity. It is possible to calculate the real profitability only for a specific store, using information on the expenses incurred and the profit received.

The calculation of the profitability of a store is based on the most important parameters – profit, expenses, revenue. However, many entrepreneurs find it difficult to determine the level of self-sufficiency of their store. One of the most common problems faced by non-professionals is using complex formulas to calculate the profitability of a small store. For relatively compact retail outlets, it makes no sense to use intricate calculations, because all the indicators are already on the very surface.

The second problem that leads to errors in determining profitability is caused by inattentive analysis of the costs and profits generated – inaccurate data used to determine profitability ultimately lead to incorrect results.

?Why do you need to carry out profitability calculations?

To find out the level of sales, correctly assess the ratio of the cost of goods to profit, revise and analyze the pricing policy – the calculation of profitability is carried out. It is advisable to take as a basis indicators that are generally considered optimal in the industry, high or low, respectively, and then compare the resulting result with known parameters.

In addition, continuous accounting will allow you to optimize waste and notice in time if a similar situation took place, that too much money was spent during the reporting period.

Profitability in the case of acquiring a new outlet is focused on calculating the return on investment. It is known that the payback period of a small store in a period of six months to two years is considered normal. How quickly this moment comes depends on the value of assets, rent, percentage of the margin and the price of the product itself. If there is a need to calculate the profitability of a particular store, we advise you to start by compiling a list of all current expenses for the reporting period.

?The formula for profitability: what does it consist of?

First, you need to take into account all expenses incurred in the period that is taken as reporting. It is recommended to start with one-time expenses, it is quite easy to forget about them, especially if the calculation of the profitability of the store takes place for the future – that is, to determine the benefits of such an acquisition or investment. As an example, we will take the cost model used when buying stores. Among the most common are cosmetic repairs (almost 100% will have to be carried out by the new owners), re-equipment of the store entrance (when changing the name or work profile, for example), changing the sign, pillar, purchasing commercial equipment, cash registers, baskets for buyers. The approximate cost of re-equipping a store for yourself can reach 1 million rubles. The calculation of profitability cannot be carried out without assessing the priority financial losses for the restructuring of the current project for the new goals of the entrepreneur-buyer.

The profitability of a store is directly related to fixed costs. If you don’t have your own premises, you will have to pay rent, you should also take into account the need to transfer taxes, salaries to employees, and finance advertising. An item of contingencies is invested in fixed costs – the amount depends on the volume of financial turnover. The next item will be income – in other words, revenue.

The profitability formula is not complete without calculating the profit from sales. To do this, monthly income should be multiplied by the markup on the goods sold. After the profit from sales is received, it is necessary to subtract the expenses incurred from this figure. The resulting number will be the profitability, the net profit received by the entrepreneur. Another profitability formula is used: profit is divided by loss, the resulting number must be divided by the cost of production, and then multiplied by 100%.

!Features of calculations

The profitability can be considered not only for the store, but also for the individual product sold by the outlet. Such calculations will also come in handy if a new direction opens in the store.

At the first stages of the operation of any object, economists advise using the so-called initial coefficient, it is likely to grow over time. After all, at first the entrepreneur has to promote a store or product, spend money on advertising, and there will be little return. But then buyers will find out about the product, it will be possible to reduce the cost of advertising campaigns, and the number of customers will increase. Unfortunately, the price and cost of production, unfortunately, in most cases are not stable, therefore readings have to be adjusted more often than once in the reporting period. The more unstable the situation in a business or industry, the more often it is necessary to calculate profitability.

As you can see, there are many ways to calculate the exact ROI. The main thing is to take into account all expenses and correctly determine the incoming profit.

It is not necessary to use tricky formulas, you can understand the level of return on the store by performing a simple mathematical calculation given in the material. Remember, store profitability is the primary indicator of business success.

Post Author: Rachel Reinbauer

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