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So far in this blog series, and in The 5 Numbers Project (or ‘ T5NP‘ for short) we have been focused on Profitability (seeing if we are making more money than other companies, or more than we were making last year.) With this Fifth number, we are looking to see if we are making more money with LESS labor, the biggest single cost of running a retail store. If net profit (aka “bottom line”) rises at the same rate as the cost of doing business, owners and bankers should all be happy, correct?

Well actually no, not happy at all. You’ll hear the word “productivity” a lot from economists and stock analysts as they look for those companies doing more from less. This is often (but not always!) a sign of a progressive company or an economy that is investing in efficiency for the future, rather than living on the current methods or market. The efficiency of a garden retail company is no different. Unless the owners can be sure of being able to constantly raise prices to cover rising costs and make the same bottom line as previous years, they have to make more with less.

I’m getting ahead of myself here, but the most basic measurement of productivity is one of our “offspring” calculations, called Sales per Labor Hour. (Subscribers to The 5 Numbers Project will spend a lot of time learning more about, working with, and comparing these offspring calculations.) This has nothing to do with the cost of those hours (see Labor Costs post) and has everything to do with the end product of all those hours used, the sales volume.

(Yes – The answers in general retail companies will be all over the map depending on the type of store and business model. 5 gases emitted from the exhaust pipe Obviously, a warehouse club will have a huge Sales per Labor Hour metric compared to an urban boutique nursery. Even within full-service garden retail, a company that sells a lot of big ticket items like patio or specimen trees will have a much higher number than one that sells mostly small items like annuals or veggies.)

And while it’s fascinating to think about how you compare to others … the most important thing is how YOU are doing compared to yourself over time. Not just “May 2019 vs. May 2018” — but YTD 2019 vs. 2018. I firmly believe that measuring The 5 Numbers — and their “offspring” calculations – will help you have a better picture of your profitability.

SO: If you’re intrigued about how it works … and what you get when you subscribe, register to join us for a free preview webinar on FRIDAY December 7 at 3pm Eastern time (noon Pacific). The webinar will be recorded if you can’t join live, but you need to register to be able to view it. CLICK HERE to RSVP to attend the webinar, and take the first step toward more profitability with less stress … by tracking just 5 Numbers!

The range of labor costs as a percentage of sales in all types of retail can range from the low single digits of a warehouse “club” to the high 20%s, even the low 30%s in a lavishly, full service, up-scale store (the sort of place you have to ask them to let you in…). The range in a typical independent or local garden retailer can be from 15% of sales to the high 20s, depending on the service model and the competency of the management.

But as you’ve heard me say, dollars pay the bills, not percentages, so let’s look at what that means in real numbers. When we talk about the labor bill (and when we track it in the 5 Numbers Project), we are taking about the whole cost of labor, not just the wage the employee gets. The “human” costs of employing others (sometimes called “Burden”) are unknown to many employees. physics c electricity and magnetism Well, unless someone told them, how would they know anyway? I didn’t when I was an employee.

This labor total includes the actual wage plus all payroll taxes and fees, plus the employer’s contributions to things like FICA, FUTA, Workman’s Comp, Health Insurance, Vacation Pay or PTO, training, conference travel and even uniforms. If it is part of having human beings working at your company, we include it. Depending on what state you operate in, this can add up to 30% or more to the hourly cost, making a $15 an hour employee cost the company more like $20. gastroparesis I just heard from a client this week that their health insurance alone now works out at an extra $3.50 an hour (but their poinsettia prices haven’t gone up in years…)

So the rise in labor dollars is something we are closely following, especially in a good economy when employees have some leverage to bargain with. Just from watching the trends of this one number, questions emerge: Is our rise in labor dollars more or less than our rise in what pays for it, i.e., Sales Dollars? Are Gross Margin dollars going up quicker than Labor Dollars and if not, how do we make that happen?

When you closely track your labor costs, it almost becomes second nature to think of the value of the task the team are currently doing. Are we matching employee costs to the value of the task? Do we have employees costing $24 an hour doing tasks that could be done by someone costing less, and if so – is there an employee growth opportunity? I know a manager who once calculated that, because of their disorganized receiving system, the labor cost of unloading a truck was about the same as the Gross Margin dollars in that load! (That’s an Arrrggghhh!)

As I have said before: many managers and owners track and discuss their sales dollars, but not that many would openly discuss their results in Gross Margin Dollars with other companies, even those a thousand miles away. Maybe that’s because this metric is indeed a measure of retail competence, such as negotiating the best delivered terms, understanding your market and the pricing strategies it responds to and so on. Many managers do track the GM percentage – but it’s GM dollars that pay the bills, so we see the more successful ones tracking both % and GM dollars – with actions and decisions based on the change in dollars not the percentage.

Buying and selling is the core of retail. So the main result of that activity, GM dollars, is surely something to track and compare with previous years… and with one’s peers. Think of all the actions, tasks, decisions, follow-ups, administration, customer contacts, etc. carried out by the retail team each day that end up in the GM dollars column… From agreeing upon a delivered price with a supplier, to accurate receiving and pricing, through impulsive merchandising and signage, to accurate register skills and efficient delivery: company profitability is on the line.

The dollar difference between buying (inventory) costs and the final sales dollars, i.e. the “margin,” is what pays for everything else in the company and makes a profit to continue the company. This is the ONLY retail step that actually creates wealth, adds value. Some experts say that investing in inventory is the only creative investment that actually grows the company. All other activities and investments are just defensive to try to hold that wealth.

It’s such a basic concept that sometimes we almost forget. Every plant that dies or is discounted, every “incredible!” item brought in that is still sitting there being dusted and moved every season, every overlooked freight charge and every under-budgeted cost of that inventory, reduces those margin dollars. gas x ultra strength during pregnancy The difference between planned or budgeted GM percentage and the actual figure after inventory adjustments can be as much as 5-6% of total sales (twice the ad budget!). When you show that difference as actual margin dollars, you might want to sit down first.

But until you know the growth or decline in GM dollars for the current year, you can’t (or shouldn’t) decide how much labor you can afford to bring in to service and sell the inventory next year. Unless you look at the trends in GM dollars in your company (and in the industry) you may not know which products are worth investing in and which are worth leaving alone.

So, yes Gross Margin dollars are something we are really going to get down to, watch like a hawk and talk about, a lot. Let’s talk about your GM dollar changes up or down within a department or a category. Let’s look at GM dollars for a certain category and then look at how much space or labor that category uses to get that result, hmmm… Let’s compare GM dollars earned from competing vendors (ooh, that’s powerful!) or from different buyers at their annual review time… Never a dull moment in the GM dollars world!

In conversations with owners and managers about the year or business conditions, the topic sooner or later turns to sales volume. There is always a reluctance among strangers to avoid “the number” – so we tiptoe around with questions about the number of employees or registers or parking spaces instead. Sometimes you’ll hear phrases like “north of $2 million” (but never “south of $500 mil”!)

So there’s no problem with owning a retail store that sells $850,000 a year, unless and until you dig deeper to see what the other metrics show about today’s operation and what sales have been in the past! Current sales volume is just a number documenting a step on the ladder that many other companies have occupied at some point in their development. Similarly, there’s nothing fabulous about “doing $25 million,” unless and until you look under the hood. There are many famous retail brand names which once boasted billions in sales, but are no longer around.

Sales volume is just a marker of size – a place on the graph or ladder to higher volumes. Sales on its own has little merit with few, if any, lessons to be learned on its own, except maybe local bragging rights. But if that’s all there is to work with I can at least look at the growth (or lack of) in sales over the years and ask the question, “Are the sales going up as least as quickly as the rise in the costs of doing business?” That’s our first Hmmmm….

As we will see in future blogs, that sales volume number is crucial when comparing margin dollars earned from those sales, or labor costs to drive that volume and so on. In fact sales volume is the denominator for several of our standards and comparisons on the retail dashboard from Gross Margin dollars to Labor Productivity. national gas average 2007 And you want to be able to see improvement in those numbers for your own company over time.

One of the features of The 5 Numbers Project within Your MarketMetrics is that it will be filterable by business size or geographic region … so you can compare yourself to “others like you” more readily. When there are at LEAST 5 businesses in each category, layered filtering (size AND region) can be ‘turned on’ – our primary objective is maintaining anonymity.