If you decide to open a dollar store business, your frame of reference needs to change.
Where many business owners will ignore the impact a single penny can have on their business, looking instead for the dime-sized impact, you cannot.
You simply don't have the luxury of looking away whenever a change to reduce costs presents itself.
With the sales volume, and the continually increasing costs, you must continually be on the lookout for those extra pennies in savings.
Read on to discover how a single penny can grow into hundreds and then many thousands of dollars in extra savings when you are focused on merchandise.
Start by determining the cost of goods sold for your dollar store merchandise.
This is easy for those selling at the dollar price point.
Simply take your total costs for the merchandise purchased in an order, during a week, or for an entire month.
Be sure to include freight and shipping-related costs to transport the merchandise to your dollar store business.
Then just divide that number by the total units purchased, less returns, and unsalable items.
This will provide you average landed-cost per item.
For example, if your landed cost of 100 items is $50 after all unsalable items are removed, then by dividing $50 by 100 you determine your wholesale cost per item is 50-cents.
For those who want to open a dollar store with dollar plus format, there is a little extra work, but easy.
Start by collecting the total costs of all merchandise purchased for resale, including shipping costs.
Next, collect the total quantity of items purchased.
Don't forget to deduct returns and other unsalable items from the total.
Then determine the average sale price for all items.
Start by dividing the total dollar store costs of the merchandise by the total number of items.
Take that number and divide it by the average sales price for the items.
This will provide the average cost per dollar of sales.
For example, if you have spent $100 for 12 total items, but 2 of them were not salable, you would divide $100 cost/10 items available for sale.
In this case, your average wholesale cost per item is $10 ($100/10).
If your average retail sale price for the salable items is $20, then divide your average wholesale cost of $10/$20 (average sale retail price) for 50-cent average per dollar of sales.
Now you know the average cost of goods sold for this particular order of 100 items, it is time to repeat this for the entire month.
Just add everything purchased for resale during the month together to determine the monthly average.
Then set goals for the new, lower cost of dollar store merchandise you purchase for your dollar store business for the next month.
When you open a dollar store, do not make this a one-time activity where you set aggressive goals, fail, and then give up.
Be reasonable.
Reduce the costs per replenishment item purchased by one-cent may be a good goal to start.
Now let us examine the impact of that one-cent on cost reduction for the month.
If you see your dollar-price point store has monthly sales of $30,000 per month, it means you've sold 30,000 items.
Saving one-cent per items totals $300 in reduced costs for the month, or $3,600 reduced costs for merchandise over the year.
When you open a dollar store, you don't stop there.
Once you achieve 49-cents, implement a new goal of 48-cents.
Go to work with existing suppliers, new, lower costs suppliers and other new sources to reduce your merchandise costs once again.
Never stop.
Keep focused on reducing costs and the numbers will add up quickly for your dollar store business.
To your success when you open a dollar store!