General Revenue and Expense Category Guidelines

Profitability, of course, depends on many variables. The location, the cost and variety of merchandise, and the management skill of the owner are just a few of the many factors that will ultimately determine the level of profit.

Many expenses in this business are fixed; they stay constant regardless of the sales generated. The following table lists typical FIXED cost categories and it provides a model to use in determining what your costs will be.

Therefore, a few key VARIABLE cost categories will determine how well the store performs. They include:

MERCHANDISE - Storeowners will control their average cost of merchandise based on the suppliers they purchase from and the product mix they decide to put in the store. The average cost of the merchandise orders we create to open most stores is typically between one ($1) and five ($5) dollars per item on a storewide basis. (Opening store orders take into account the geographical location of each store and freight and delivery time considerations, and are placed with the suppliers best situated to provide economical, timely stock replenishment. This helps each store identify a group of suppliers best suited to serve them as they go forward.) Keep in mind that the average cost of merchandise for some departments runs at a higher average cost. For example, Men’s and Ladies’ pants or jackets cost in the range of four ($4) to five ($5) dollars per item, and undergarments range from fifty cents to one dollar and eighty-five cents ($1.85). If a storeowner decides to put a higher percentage of pants in the store than we originally recommended, their average cost on a store wide basis will be higher.

WAGES - Each client should strive to keep labor cost, including that of the owner and manager, in the range of 10 to not more than 13 percent of sales

FREIGHT - This is usually discussed in terms of freight cost as a percentage of merchandise purchased. The store owner should try to keep the range of freight cost to merchandise purchased between 3 and 5 percent. Stores that are located in states where the population density is lower, such as Montana, Wyoming, Idaho, and North Dakota may realize slightly higher costs due to the infrequency of truck routes.

SALES - Sales level is the other key factor that will help determine your profit level. Sales per square foot will vary from location to location and from storeowner to storeowner based on a myriad of factors. The size of the community, general customer traffic of the shopping center, store location, proximity to the anchor, previous business ownership, management and merchandising experience of the owner, area competition, and personal daily involvement of the store owner are just a few examples of the variables that will determine your level of sales. The business skill and experience of each owner, along with the level of involvement in and commitment to their store will have an impact on their success.

SAMPLE OF FIXED COST CATEGORIES

DESCRIPTION - RECOMMENDATIONS ON HOW TO DETERMINE COST

HEALTH INSURANCE - typically, this is a major medical policy for the store manager. You can offer no coverage, major medical coverage, or different levels of more complete coverage. It is recommended that this cost be kept at around $100 per month.

INSURANCE - this category relates to general business coverage and includes public liability, fixed articles, theft, and other coverages. Contact a local insurance agent for quotes.

ELECTRIC - the local power company can give you estimates of electric cost for retail establishments by square foot.

TELEPHONE - determine usage -- again, your local phone company will give you insight into this nominal cost.

PERSONNEL - this typically includes items such as pizzas once a month and a year end party. Determine what you would like to do for your employees.

RENT - this figure includes the monthly stated rent and charge for common area costs. The lease agreement will state these charges. For preliminary planning purposes, contact with local realtors will give you a good idea of the cost range.

SUPPLIES - this category pertains to office and store supplies. Pens, tape, paper, printer cartridges, and like items.

ADVERTISING - routine advertising is always recommended to keep your store in front of the public. The local newspaper will provide various rates and programs.

DEPRECIATION - pertains to the periodic write-off of capital cost items. Your local accountant can provide further information.

OTHER EXPENSES - this is a catch-all for other costs that pertain to your business operation.

THIS EXAMPLE OF KEY FIXED COST CATEGORIES IS NOT INTENDED TO BE COMPLETE AND SHOULD BE USED FOR GENERAL INFORMATION PURPOSES. IT IS ALWAYS PRUDENT TO DO YOUR HOMEWORK AND DEVELOP A RANGE OF COST LEVELS THAT CAN BE USED FOR FINANCIAL PLANNING PURPOSES. AT THE END OF THIS SECTION YOU WILL FIND A BLANK WORKSHEET TO USE TO CREATE YOUR OWN ESTIMATES.

THE FOLLOWING ILLUSTRATION SHOWS THE FORMULA FOR HOW YOU CAN DETERMINE THE SALES NEEDED TO BREAKEVEN AND TO GENERATE VARIOUS LEVELS OF PROFIT FOR YOUR STORE:

ILLUSTRATION FOR A SMALL STORE SUMMARY OF VARIABLE COST RANGES AS A PERCENTAGE OF SALES