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: How to calculate return on sales

The effectiveness of their own business, as well as the performance of business activities of a trading company is best judged from the point of view of profitability of sales. Very often business owners take the increase in gross turnover for the success rate. In practice, however, only profitability reflects the real picture of Affairs.
How to calculate return on sales
You will need
  • - indicators of economic activity of the company;
  • calculator.
Profitability of sales is expressed in a certain coefficient, the dynamics of which you can compare in different reporting periods. To start, determine the period for which you will calculate the profitability of sales, for example, year or quarter. Identify the two basic quantities needed to search for this ratio: net profit and total revenue from sales. Net profit (RAS) is a portion of the gross profit on the balance remaining after deduction of the tax (after paying all tax deductions and contributions to the budget). It is used for payment of dividends to shareholders, capital renewal and development of the company.
Revenue from sales is the total amount of the income received through sales of goods, services and works.
Once you have calculated these two values, you can determine the ratio of profitability of sales. Divide net profit by sales and profit, and you will find out the profitability.For example, before last year, revenues amounted to 3.5 million rubles, and net profit of 900 thousand rubles. Thus, the coefficient of return on sales = 0,9/3,5 = 0,2571, that is 25,71%. And last year, revenues from sales amounted to 3.7 million rubles, and net profit of 950 thousand rate of return - 25,67%. This example demonstrates that the increase in revenue and net profit does not increase profitability, since the profitability index decreased by 0.04%.
Having such data and the company's executives can make decisions to optimize the business and finding the reasons for the reduced profitability.
For a more complete picture of the performance of the company, calculate the profitability of sales on multiple levels. For example, a particular group of products or for each major client. This technique will allow you to make more accurate conclusions on the future work. You may waive certain products or optimize your client base.
The fall in the profitability of sales - alarm signal requiring immediate decisions. A thorough analysis of the financial activities of the enterprise to eliminate the causes of this trend.
Useful advice
Profitability can influence the objective factors of the external environment, does not depend on your work: fuel prices, exchange rates, political and climatic situation. Take into consideration these factors.

Advice 3: How to increase profitability of sales

The profitability of sales determines what the value of the specific weight of net profit to revenue from operations of the company. Another name for this indicator – the rate of profit. Increase of profitability of sales is mainly due to factors such as a decline in the cost of goods and increase of its price.
How to increase profitability of sales
You will need
  • Skills in economic analysis, and financial reporting.
Identify which factors influenced the decrease in profitability of sales of your product. Analyze market sales. See all similar products/services that competitors offer. Due to the fact that the number of manufacturers may vary, highlight the major ones that occupy the most stable positions on the market.
Sensitively react to changes, especially innovations to ensure that your goods meet modern standards and are in demand. To achieve this, apply a reasonable, and most importantly, flexible assortment policy for the production and sale of goods/services.
Analyze financial activities of the company, which determine what expenses can be reduced. If it is possible to increase the profit and profitability of sales , reduce the cost of production. Just keep in mind that in this case should not be any reduction in revenues. Or increase the price of their goods/services if it will not affect the number of buyers willing to buy it. Lean on the current situation on the market, as well as prices, who are ready to offer competitors.
If the company has been producing several kinds of products, determine which ones are most popular on the market. By increasing the specific gravity of the most profitable products in total production going for the implementation, increase the profitability of sales of all goods/services.
Useful advice
Analysis of profitability of sales spend on a regular basis, controlling costs, and the sales of goods/services.

Advice 4: 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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