As an inventory based business, it’s important to understand the numbers side of things. You need to know a couple of things.
- Do you have enough inventory on hand?
- Are you working to your highest potential?
Let’s dig in, shall we?
Do you have enough inventory on hand? One would think this is a highly subjective question to ask, but it actually has a highly logical approach to figure out. When looking at an inventory-based business like Paparazzi Accessories, the amount you have on-hand can make or break your business! We always say, the more you have, the more you sell. But how do you know if you have enough?
So let’s look at this from a purely mathematical point of view.
Realistically, you can expect to sell through 1/3 to 1/2 of your total inventory on a monthly basis, assuming you are working to potential.
You know we earn a 45% commission, so we are going to reverse-engineer the amount of inventory we need to keep on hand to meet our financial needs.
Ready to begin? Think of a bill you need to pay on a regular monthly basis that you would LOVE for your Paparazzi business to take over for you. Let’s say that bill is $500 a month.
Divide that number by .45 and you will have the total sales you need to make in that month. In this instance, $500/0.45 = $1,112. Let’s round that up to a multiple of $5, and we have $1,115.
$1,115 is the equivalent of 223 pieces of jewelry that you would need to sell in the month.
Now that we have figured out how many pieces we need to sell in a month, we need to determine if we have enough stock on hand to cover that much in sales.
If we are selling though 1/3 to 1/2 of our inventory in a month, then we need to have between 446-669 pieces of inventory on hand! Did you see how we get there? Take the number of pieces we need to sell to reach our goal, and multiply that by 2 and then again by 3. Your inventory needs to be in that range!
Now that we have determined how much inventory you need to keep on hand, it’s time to determine if you are working to your highest potential.
We’ll use my inventory as an example in this scenario. I keep 1,200 pieces of inventory on hand. If I were to sell through 1/3 to 1/2 of my inventory, I should be selling 400-600 pieces of jewelry every month, right?
If I am only selling 100 pieces a month, I am not working at my highest potential. I would need to work on booking more parties, adding members to my VIP group, increasing my website exposure, booking more events, etc. Do you agree?
However, if I am selling in the 500 piece range, I am right on target!
How can I keep track of how many pieces I need to be selling at any given time? We can once again reverse-engineer the numbers on this.
Start by looking at your calendar. Automatically take away any days that you know you can’t work. How many days remain on your calendar?
For example, if a month has 30 days, and I know I can’t work 10 of those days, then I can work for 20 days.
If I need to be selling 500 pieces a month to be working up to my potential, then I am going to divide that by 20 to determine the number of pieces I should be selling a day.
Let’s do the math. 500 / 20 = 25 pieces a day
Now, throughout the month, I can keep track of how many pieces I am selling and determine if I am staying on track!
If I know my average party is 30 pieces, then I would need to work 17 parties. If my average event is 50 pieces, I would need to book 10 events. If my average live sale is 40 pieces, the I need to schedule 13 live sales.
Now that you know how to determine if you have enough inventory, and how to work to your highest potential, it’s time for you to put your plan into action!
What do you need to do? Build your inventory? Increase your sales? Or maintain your current level of business?