Retail Sales – Profitability

Merchandising Math Handbook for Retail Management

No one will question that profits are the name of the game.  So, just what has to be measured to figure out if your business is profitable–and even more importantly, what do you evaluate and how can you analyze what shifts and changes can increase your bottom line.

The simplest of business math skills will help you determine the sales per square foot of retail space and the financial profitability of a business.  If you are operating a healthy business you can see it in the strenght of the sales per square foot and in the details of an operating statement. Sales per square foot is the cost of the space allocated to a department is part of the department’s operating expenses, and is an indicator of the strength of the business performance. Based on merchandise assortment, the amount of floor space is sometimes increased or decreased because of selling trends, customer comfort or even fixture changes

Profitability is measured by sales volume, cost of goods sold, and operating expenses.  Merchants rely on monthly income statements to review the operations and will review detailed Operating Statements, often called “profit and loss reports,” which reflect specific earnings and expenses.  In this report it is clear to identify the profitability of the inventory assortments as well as any changes or adjustments need to the direct expenses a business might incur.

To learn more bout profitability, the formulas and suggested forms and reports to use for analysis, see Lessons 1 and 2 in Section Four of Math for Merchandising Retailer’s Handbook.