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Owning a retail store can be very rewarding, but it can also be a tricky business to balance if you’ve never run one before. Even for an experienced retailer, there is a delicate balance between being successful and falling short of your goals.
There is a fine line between success and failure, so, before you swing open the doors to your new retail store, here are six things you should know.
1. Define a business plan
Every business needs a business plan. Essentially, the reason you want to open a retail store in the first place is the thesis of your business plan. In the broadest sense, a business plan is simply an outline of goals and objectives of your business and a roadmap on how you plan to achieve them. It can be something as simple as taking out a piece of paper, a pen and jotting down your ideas.
Here are 12 questions your business plan should answer.
- What is the legal structure of your business? Are you a sole proprietor, partnership or a corporation?
- What kind of products and services do you sell? What makes them unique from your competitors? How will you source inventory?
- Where is the location of your retail store?
- Are you in an area with high foot traffic or will most customers drive to your location, meaning you’ll need to provide ample parking?
- Are you investing in a permanent location or are you going to test the market with a temporary pop-up store and build on that?
- What type of licensing or permits do you need to operate?
- Who will your customers be, i.e., what is your target market?
- How will they find out about your business?
- Are social media, a website and an online store part of your marketing strategy? How are you going to bring your physical location into the world of online retail? What e-commerce platform or marketplaces will you leverage?
- What are your hours of operation?
- How many employees will you need on a weekly basis?
- Where will you find these employees, and what job search platforms will you use?
Try to get feedback on your business plan if you can. You could run it by some friends that own retail businesses or try to find a professional mentor that can take a look. If you’re still stuck, consider joining your local Chamber of Commerce. A membership will grant you access to networking events where you’ll have the opportunity to meet other local business owners that can give you advice.
2. Build relationships, not sales
Owning a retail store, you’ll always keep an eye on your sales and your competitors. And, why not? Without sales and revenue, you won’t be in business for very long. It’s important to know how much is in your cash register at the end of the day. And if you don’t know what your competitors are doing, how are you going to one-up them? However, as the owner of a retail business, your success needs to go deeper than just dollars and cents. Don’t just concentrate on increasing sales, focus on creating relationships with your customers. Build relationships with your vendors.
Providing first-class customer service should be a priority for any new business, and there’s evidence to prove it. Do you remember the name of that small online book retailer that launched in the mid-1990s? That company is Amazon, and it has grown into one of the most dominant and successful retail brands on the globe. Since day one, they have obsessed over their customers. They do whatever it takes to make sure their customers have a positive experience.
A survey conducted by American Express found that more than 50 percent of consumers are willing to spend on average, 14 percent more with a business they feel delivers excellent customer service.
In that same survey, it was also found that 46 percent of consumers tell others about good service experiences, while 60 percent say they share bad experiences with others, and usually, they tell three times as many people: that’s an 8 to 21 ratio.
Building relationships with your vendors is important, too. After all, without their products and services, you wouldn’t have anything to sell to your customers. Just like you want to be first in mind for your customer’s journey, you also want to be first in mind when it comes to your vendors. If they are offering new products, you’ll be the first to know about it. If they’re running a special or promotion that allows you to get certain items at a discount, you’ll probably be one of the first calls they’ll make. And if they ever give away any freebies, that’s right, you’ll probably be on the receiving end of those giveaways.
As for your competitors, the best thing you can do is be kind. You’d be surprised what you can learn from your competitors, and who knows, you may even find a business that can complement yours and form a partnership that you never saw coming.
It’s all about networking. If you take the time to focus on building relationships with the people you meet while running your business, you improve your likelihood of success.
3. Not all point of sale systems are created equal
One of the most important tools you’ll need if you plan on owning a retail store is a point of sale (POS) system. POS systems not only optimize the checkout process, but they can also provide inventory management capabilities, employee management and customer management tools. But, most importantly they provide data and analytics about the performance of your business.
What if you own a women’s apparel shop that sells vintage and novelty T-shirts that accounts for 25 percent of your revenue? Suddenly, The T-Shirt Ninja opens up right next door. How is that going to affect your sales for that department? Without a point of sale system, you may never know.
Since a point of sale system is such a vital part of your entire retail operation, it’s important to take time and do the research at least start 90 days before your grand opening. Not all POS systems are created equal and what works for another business may not work for yours. Ideally, you’ll sit down and make a list of what you expect to get out of a point of sale system. Separate your deal breakers or must-haves from your nice-to-haves, or maybe in-the-future-features, and go from there. Most importantly, leave yourself enough time to go through the proper research channels; point of sale systems aren’t developed in one day, and they aren’t installed or setup in one either.
4. Find the right people (staff)
When you first open a retail business, you’re so excited and gung-ho that you think you can do everything yourself. However, you will quickly find out that is not the case, and you’ll need to hire a few employees.
Your staff will become representatives of your business and your brand. They are the ones who will interact with your customers the most. Therefore, they’re the ones who will be primarily responsible for creating a positive customer experience. It’s important that you find the right employees.
The hiring process can be tedious and time-consuming for businesses at any level. So how do you find the right employees? Unfortunately, there is no clear-cut answer to this question, but there are steps you can take to ensure you find the best possible candidates.
One thing you want to do is define a hiring strategy. Are you going to look for referrals from trustworthy sources like family, friends or colleagues? Or, are you going to post job openings on job search platforms such as Indeed or a local community web page?
Once you find some candidates, define what your screening process will look like. Are you going to conduct background checks, drug-screenings or credit checks? Or are you just going to rely on scouring the internet to see if their social media pages show any red flags? How many references are you going to ask for and what types of questions are you going ask them about the candidate? These are all things you need to consider before telling someone, “you’re hired!”
5. Leverage the power of social media and other marketing tools
The best part of growing your small business with this method is that you can do a lot of it on a relatively small budget.
For example, if you want to advertise on Facebook, there are a variety of different tools and metrics to determine cost, such as industry, demographics and user behavior, just to name a few. You only have to spend what’s in your budget.
Posting updates, pictures, statuses, check-ins, and creating a company page is all free marketing. And to circle back to our first point, building relationships with other users (potential or current customers) by engaging with them on social media is also free.
6. Understand your startup costs and key financial metrics
It’s easy to underestimate what it actually costs to start a retail store and keep one running. It’s essential to have a firm understanding of the startup costs involved, as well as the financial metrics you need to monitor for success.
To help you get started, here are a few of the biggest startup costs you’ll want to account for:
- Rent, utilities and building improvement costs
- IT hardware and services
- Marketing and PR
- Legal, tax and insurance compliance
You’ll also need to watch your finances to keep yourself on the path to profitability. Sure, you can hire an accountant, but every self-respecting entrepreneur should know how their business is trending. Here are a few things to monitor:
Total Sales: Monitoring your total sales on a daily, weekly, monthly, etc. basis gives you a basic understanding of how your business is performing.
Gross Margins: To calculate this metric, use this formula: Gross Margin = (Total Sales – Cost of Goods Sold) / Total Sales. Gross margin is directly tied to your profitability, meaning your margins need to be large enough to cover all of the expenses associated with running your business.
Sales By Department: One of the keys to succeeding in retail is understanding the performance of your inventory. Too many businesses fail because they don’t sell what people actually want to buy. By looking at sales at the department or even product level, you can analyze trends to avoid stocking unpopular products.
Sales Per Employee: You’ll also want to monitor how effective your team is at moving product. To calculate this at a basic level, follow this formula: Sales Per Employee = Net Sales / Number of Employees.
Understanding startup costs and tracking key financial metrics will ensure you start strong and stay on the path to success.
At this point, you should be well equipped to begin your new journey as a retail business owner. Good luck!