Advice 1: How to calculate the profitability of a clothing store

The profitability reflects the efficiency of doing business. It is necessary to calculate before making a decision about opening a clothing store, and constantly analyze the dynamics of profitability for owners already working outlets.
How to calculate the profitability of a clothing store

The calculation of profitability of clothing store



A key indicator of the effectiveness of any store is the return on sales. It is calculated in percent as the ratio of net profit to revenue. Thus, this figure clearly displays what percentage of revenue goes to profit.

To calculate the revenue quite easily - is the sum of all receipts from customers in cash and non-cash excluding acquisition costs of clothing. Whereas net profit does not include any costs associated with doing business. For clothing store is often a rent, salaries of workers, tax payments, etc.

Many entrepreneurs confuse the concept of profitability and margins. Meanwhile, they have fundamental differences. For example, the store buys shirts for the price of 100 rubles, and sells them for 150 rubles, for a month, it sold 20 t-shirts. Accordingly, the mark-up on goods is 50 p. whereas, if salaries of workers and tenancy amounted to more than 3000 rubles., that profit margin was negative.

It is advisable to analyze cost of sales separately for each commodity group. The criteria for their selection can be very diverse. For example, in multi-brand stores you can analyze the profitability of sales for each brand. Or separately to calculate the profitability of sales of different products - t-shirts, skirts, accessories and women's and men's clothing. This approach allows us to identify the most unprofitable and profitable areas and make adjustments to the range.

The return on sales can be calculated not only based on the current performance of the store, but based on the hypothetical prognostic indicators in the opening of a new store. This allows to predict the expected efficiency from the opening of the store. Also, when evaluating the opening of new outlets analyzed the indicator of profitability of investment (the ratio of net profit to total cost).

Ways to improve sales profitability of the store



It is worth considering that ROS can have both positive and negative. If the indicator tends to zero or went negative management of a clothing store is necessary to urgently take measures and to work on improving the profitability of sales. Often low profitability indicates a properly selected pricing strategy.

If the prices in the store won't increase, because it will make the store not competitive to others, should refer to the cost structure and examine its key components. If it was revealed that the major expenditure is on salary, advisable would be to optimize the number of sellers. Perhaps we should move to another room with lower rent.

You can also try to obtain better deals from suppliers clothes or to work on the range. For example, to enable you to start selling related products with higher margin. These include, for example, include a variety of accessories (bags, sunglasses) and jewelry.

Advice 2: What is the return on sales

Profitability is one of the indicators of business activity of the enterprise which are necessary for making management decisions. It is used in financial statement analysis, valuation of economic activity, the pricing process. The level of effectiveness of sales characterizes their profitability.
What is the return on sales



Profit margin shows what part of the revenue of the enterprise has profit, and it is their ratio:
Profit margin = Profit / Revenue x 100%.

Thus its calculation can be carried out by different types of profit: gross, operating, that is, from the main activity, and clean. Formula of computation as follows:
- Return on sales (gross profit = gross profit / Revenue x 100%;
- Operating margin = Profit from sales / Revenue x 100%;
- Net profit margin = Net profit / Revenue x 100%.

The profitability ratio net profit margin shows how much net profit the enterprise has from 1 rouble of sales, i.e. how much available funds remain available after funding for core activities, interest payments on loans, other expenses and taxes. The profitability ratio's gross profit margin characterizes the main activities of the company and to determine the share of costs in sales and trading margin.

Profitability of sales is calculated according to the profit and loss statement (forms No. 2 of the balance sheet) at the reporting date. For objective evaluation it is necessary to consider its dynamics, that is, for several periods. Based on the analysis of changes of the coefficient we can conclude about the effectiveness of business management: the growth of evidence of competent and correct decision of the leadership of the organization and the reduction of potential problems in operation.

The change in the coefficient of profitability of sales in one direction or another can be attributed to various factors: the increase in the absolute rate of profit, reduced sales, etc. it is Important to identify the reasons: the higher prices for the products and services may be normal or low value, but if it is associated with a decline in consumer demand and interest in the company's product, it is regarded as a disturbing factor.

On the background of the implementation of advanced technologies or the development of new activities often marked by a temporary reduction of profitability of sales. However, when correctly chosen strategy of development in the future, the investments will pay off, and profit margin may rise to previous levels, and to overcome it.


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