Too often I see the mistake of retailers not understanding the real costs of a product category because they to not allocate labour costs to a department, category or supplier.
Do this at a high level and you should be able too understand what you are really making from that product category or supplier.
This is the approach used by newsagents with deliveries years ago when they started selling off their territories. You can use the approach for lotteries or other agency like products and services you offer. However, I’d focus on the big ticket items.
Sure there is a management cost to get to this analysis. Th result is a better understanding of the real value of a product c category and / or supplier.
Mark,
Whilst the allocation of labour cost might be illuminating in understanding profit generation. It is only relevant to many businesses if labour is a flexible cost. If the labour cost of the business is minimum required to keep the doors open, then it matters not how the cost is allocated. To put it another way, if hours worked include standing around doing nothing, then there is no saving from eliminating low return sales products as any sale is better than no sale.
Better to concentrate on gross margin (revenue less cost of goods) per square metre and only worry about labour if additional hours need to be worked to serve customers within the hours open …I reckon most newsagents never reach this point.
What is very relevant is your earlier blog on performing support functions whilst within the shop. These are a true saving and utilise the downtime incurred in staffing the shop at the minimum necessary to keep the doors open