I did an ABO class on Retail Math at Monterey Symposium last year. Although ‘math’ may seem boring to most people, it is crucial to the success in an eyecare practice. I was surprised that none of the attendees except one person (from Wal-Mart) knew anything about retail math and the importance to overall optical profitability and good optical buying habits.
Should your eyecare staff understand retail math as a part optical sales and marketing and eyecare retail strategies? Yes! Should the basic principles of retail math be applied on a daily or monthly basis- YES! Why? because knowing basic principles on how to buy and price products can increase inventory turns, increase profitability in an office, increase cash flow, save money and best of all enhance customer service and help keep patients and increase employee morale and productivity.
This post is about Breaking Even-For instance- You had a banner day, sold $5,000 worth of merchandise, the employee may think the eyecare owner made $5,000 that day. (You wish!) but in reality the owner may have made $500. Ergo: Retail Math, What does the eyecare professional need to Break Even in their business?
Breakeven Analysis formula is how much sales must be accomplished everyday, week or moth to cover all costs, both fixed or variable to begin generating a profit. This is the amount a retailer has to do to at least not lose money and stay in business.
Formula: Breakeven = Fixed Costs / (Revenue – Variable Costs)
- Fixed Cost- Are the same no matter what you may be selling. Rent, Insurance, Internet, Phone
- Variable Costs- Recurring cost that may comprise of inventory, labor, bonus etc.
Why is this important to optical staff? Knowing this magical number gives staff a daily sales incentive. As an example, if a daily breakeven amount was $500/day. It’s 5 p.m. and sales have only amounted to $450. Staff is tired and the last patient is almost done. Knowing that in order to break even -the office needs $50 more, staff is more likely to present options such as Mirror Lens tint options, Clarity DeFog and second pair options.
In conclusion, know your break even point, share it with staff, give them an incentive to achieve over and beyond your break even number and I can almost guarantee you an increase in gross and net profitability.
Resources:
- Sales Per Transaction
- Mark Down Calculator- Free Stuff
- Optical Profitability- Sales Per Square Foot
- Optical Inventory Management- Inventory Turns
- Figuring Out Your ROI on Patients – Free Stuff
- Analyze What is Selling
Similar Posts:
- Retail Math for the Optical Retailer- Learn to Grow Your Businesss
- Optical Inventory Management- Inventory Turns
- Optical Profitability-Sales Per Square Foot
- Optical Goods Stores- Inventory Turnover Trends
- Measuring Productivity and Profitability – The Edge
GREAT information! It’s a bit scary that a lot of eye care professional’s offices operate without this basic and vital information. This should be required learning!