How Well Do You Manage Your Inventory?

The relationship between your sales and your inventory is vital to the success of your business. Take this simple 7-question assessment to discover how well you manage your inventory, and receive personalized recommendations to take your retail business to the next level.

Question 1

  • Question – I review the value of my inventory at least once a month.
  • Answers –
    • Yes, I already do that
    • Not yet

Question 2

  • Question – I know the value of my inventory at cost AND at retail
  • Answers –
    • Yes, both at cost and at retail
    • Not yet

Question 3

  • Question – I manage my inventory by category of merchandise
  • Answers –
    • Yes, already doing this
    • Not yet

Question 4

  • Question – I know what turnover is.
  • Answers –
    • Absolutely
    • Not yet

Question 5

  • Question – I know my cash margin at the end of each month.
  • Answers –
    • Definitely
    • Not yet

Question 6

  • Question – I review merchandise to be marked down on a monthly basis
  • Answers –
    • Yes, already reviewing
    • Not yet

Question 7

  • Question – I have a plan to improve my profitability and cash flow.
  • Answers –
    • I do have a plan
    • Not yet

 

Room for Improvement

You Have Some Room for Improvement. Our recommendation is to start with your basics, such as how much inventory you purchase for each season. You don’t want to purchase too much of one item and resell any leftovers a year later. While it seems like a good idea and can be easier to manage with vendors, it can unnecessarily hurt your cash flow in the long run. At the end of the season, rather than marking down your leftover items, you should instead mark them half off. Once they’ve sold, you will be left with cash to buy new products.

In Good Shape

Nice work. You’re in Good Shape! Our recommendation is to further diversify your business to help your turnover. Offering new products or services can help you increase your turnover ratio. Customers like seeing a variety of options. If they see the same products/services every time they come to your store or website, they won’t get that sense of urgency to make an immediate purchase. Purchasing new items or offering new services keeps them interested in your business while also fulfilling another need they may have.

In Tip Top Shape

Congratulations! You’re in Tip Top Shape. Our recommendation is to start measuring your business performance against your industry benchmarks. While your standard business reports give you the data to evaluate your performance, it is important to know the standards for your industry. Key Performance Indicators include Turnover, Gross Margin Return on Investment and Maintained Margin. Turnover measures how many times a year you turn your inventory; the faster you turn your goods, the more cash you generate. GMROI measures how much money you make for every dollar invested and Maintained Margin measures your profit after markdowns.

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