Are Your Operating Expenses Draining Your Profit?

Payroll, advertising, utilities, rent and more all add up to your total operating expenses–and if one of those expense lines gets too high, it cuts into your store’s profit.

Ask yourself the following questions to determine if your expenses are getting out of control:

1. Are your payroll dollars productive?
2. Has rent continued to increase over the past few years or has it remained steady?
3. What is your return on investment for advertising and promotional materials and campaigns?
4. Are you receiving the best insurance rates, or could another provider offer you better coverage at a better price?

To help you answer some of these questions and determine how your business compares to industry averages, use the North American Retail Hardware Association’s (NRHA) annual Cost of Doing Business Study.

The study, which aggregates financial data from more than 1,000 stores across the country, is the industry’s only inclusive retail benchmarking tool and provides the industry averages for different financial metrics so you can see how your business compares to peers.

To get started, look below at the operating expenses, as percentages of sales, for typical and high-profit stores. Where does your business fall? Do you have fewer sales dollars tied up in expenses like a high-profit store? Or are you closer to a typical store, with opportunities to tighten your budget?

Applied to Retail: Once you answer the questions above and determine if your business is typical or high profit, you can look for opportunities for reducing your expenses or improving the productivity of your spending.

In the 2015 Cost of Doing Business Study, expenses are broken out by item and then the averages for the industry are provided. This information will help you understand the different areas your store can improve.

If you find that your payroll is too high, then take a look at a resource NRHA has created that includes case studies from other retailers who have significantly reduced the line item. Download the payroll resource here.

If you see the value of the Cost of Doing Business Study and would like more financial tools to improve your business, you can participate in this year’s study and, in return, receive a personalized financial analysis.

For more information about participating, click here. All contributors’ information is kept confidential.