How to calculate the profitability of a clothing store

Profitability ratio reflects the effectiveness of doing business. It must be calculated before deciding to open a clothing store, and constantly analyze the dynamics of profitability for owners of existing outlets.

Calculating the profitability of a clothing store

A key indicator of the performance of any store is the profitability of sales. It is calculated as a percentage as the ratio of net profit to revenue. Thus, this indicator visually reflects how much of the revenue goes to generate profits.

Calculating revenue is quite easy - this is the sum of all receipts from customers in cash and non-cash, excluding the cost of purchasing clothes. Whereas the net profit does not include all the costs associated with doing business. For a clothing store, this is most often rent, sellers' salaries, tax payments, etc.

Many entrepreneurs confuse the concepts of profitability and margins. Meanwhile, they have fundamental differences. For example, a store buys t-shirts at a price of 100 p., And sells them at 150 p., 20 t-shirts were sold per month. Accordingly, the margin on the product is 50 p. Whereas, if the salary of sellers and rental of premises totaled more than 3, 000 rubles, then the profitability of sales was negative.

It is advisable to analyze the profitability of sales separately for each product group. The criteria for their selection can be very diverse. For example, in multi-brand stores, you can analyze the profitability of sales for each brand. Or separately calculate the profitability of sales of various goods - T-shirts, skirts, accessories or women's and men's clothing. This approach allows you to determine the most unprofitable and profitable areas and make adjustments to the assortment.

Return on sales can be calculated not only on the basis of current store performance, but also on the basis of hypothetical forecast indicators when opening a new store. This allows you to predict the estimated effectiveness of the opening of the store. Also, when evaluating the opening of new retail outlets, the indicator of return on investment (the ratio of net profit to total costs) is analyzed.