Knowing how much profit each of the shelves in your store produce, is of as much importance for any retail store as product placement in the store would be. Knowing what the productivity of an individual shelf is, under certain conditions will not only help you increase profits, but also help you to improve product selection and placement in your store. The idea is that you want to get as much profit as possible from every shelf in your store. And I mean shelf space in the broadest sense of the term.
Step 1: Decide on a unit of measure
One of the first things you have to do is decide on a unit of measure. Realize that in order to compare one particular space to another, they need to be the same unit of measure. E.g. If you use 1 foot of shelf space you need to apply that to every part of the store that you wish to calculate. Comparing proverbial “apples with apples” is key for this to work.
Step 2: Number your shelves for tracking
Once you have decided on a unit of measure that works for you, number your shelf spaces (on paper at least) so you can identify specific locations and shelves. I would suggest you use a store map combined with a spreadsheet of sorts. Also realize that the larger an individual unit of measure is, the less accurate your profitability comparison will be. So using a smaller unit of measure will likely prove more valuable. E.g. use 1 foot rather than 2 feet.
Step 3: Allocate a product
Of course having spent some time on product placement at this point, you will already have products allocated to specific locations in your store. So it is a simple matter of connecting a product to a shelf location number.
Step 4: Calculate the dollar value profit per item
Though knowing percentages of margins may prove helpful, the true measure of productivity is actual dollars earned. So figure out the gross profit for a particular item (revenue – cost of sales = gross profit).
Step 5: Use the dollar value to calculate dollar value productivity
Simply multiply the number of units sold, of a particular product, with the dollar value gross profit. The most importance part for comparison is that you need to measure it over time. So use 1 week, 1 month, 6 months or whatever other time measure you wish to use. Apply this to every shelf in your store, and very soon you will identify your highest producing shelves and conversely also the lowest producing shelves. Connect it to seasons and you will soon see what produces when.
Step 6: Take your time, analyze and experiment.
The amount of information that can be gleaned about your store productivity from an analysis of this nature is immense and immeasurable. Especially over time. Realize however that this type of analysis takes time, especially in an environment that may have several cycles. So make sure that the time used for calculating your productivity matches your store and product types. Of course with this data you can calculate the precise seasons for a particular line, for example.
In conclusion having analysis of your store productivity will make you better at retail, and increase profits for sure. The only thing to remember is that you should do it regularly and be patient. Building a useful statistical database takes time, and some effort.
I wish you all the best with your ventures and invite you to share your stories and comments here.