Monday, June 22, 2009

Growing the Top Line or the Bottom Line, What's Your Goal?

I just returned from the American Specialty Toy Retailing Association (ASTRA) Marketplace 2009 in St. Paul, MN. Hundreds of toy retailers and manufacturers gathered to highlight the best toys for 2009 and the best practices for toy store owners.

And over the course of 4 days I must have heard the question, "How's biz?" at least a hundred times.

It's a fair question. We're all concerned with how other retailers are doing in other parts of the country. The issue I have is with the answer.

Most every retailer talked only about their top line sales. Sales were 'flat' (flat is the new up), 'down a little', 'holding steady', 'tough' and many other euphemisms for "not what we want but who's complaining?"

But no one mentioned the bottom line - profit. When you get right down to it, retail is not about top line sales but bottom line profits.

If top line sales were all it takes to make you happy, I have a guaranteed 3-step program to raise your sales 100% over the next three months.
  1. Mark everything at half price.
  2. Quadruple your advertising.
  3. File bankruptcy.
Anyone want to try it?

One of the speakers at ASTRA, Bob Negen, pointed out correctly that there are only three ways to increase top line sales:
  1. Get more (new) customers
  2. Increase average sale
  3. Get existing customers to shop more often
Bob went on to give us great tips for doing all three with the idea that if we grew our business 5% each way we would have 15% top line sales growth. Who wouldn't want 15% sales growth?

Before you answer, let me rephrase the question... Who wants 15% sales growth with 30% growth in costs? Doesn't sound so good, now, does it?

One of Bob's ideas to get customers to shop more often is a Frequent Buyer's Club. You've seen these. Shop a certain number of times, spend a certain amount of money, and get a kick back of some sort. In Bob's way, the customer shops 6 times and then gets a store credit for 10% of her purchases as an incentive to shop more. In essence, it's a 10% discount for 6 out of 7 trips to the store. And this idea is supposed to grow your sales by 5% by getting customers to shop more often.

I'm not the brightest mathematician around, but spending 10% to get 5% growth doesn't add to the bottom line. Probably why I'm not a fan of discounts, coupons or Frequent Buyer Clubs.

On the other hand, Bob gave some great ideas for increasing the average sale.
  1. Raise your prices
  2. Add on to every sale until the customer has everything she needs (what I like to call "completing the sale")
Both of these ideas will not only increase your top line, but also add to the bottom line.

When you are looking at ideas to grow your business, remember that your goal is to grow your profit, not necessarily your sales. Look at each idea carefully and see how it changes your bottom line, not your top line.

Paying attention to the bottom line is what will keep you in business and make you most happy.

-Phil

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