Institutions are under continued pressure to make their budgets stretch further and are always looking for additional revenue to help fulfill their missions. Nonprofit stores are increasingly being asked to supply more significant portions of that revenue without increased resources, all of this while having to compete with online discounters, and rising costs have led managers/buyers to have added more to their list of responsibilities. Fear not — there is margin hiding in plain sight that you can add without too much effort. These suggestions from museum industry leaders will help you find that extra profit.
Review sales data
The first step in finding the additional margin is reviewing your sales data. Knowing your data is single-handedly the most important step to improving profitability. With busy schedules, most of us look at bigger picture numbers regularly, but it is essential to delve into sales numbers as well.
“Before retail pricing can be adjusted, one has to know what the pricing is now. One step in that direction is to prepare a matrix of the number of SKUs by price point,” said Andrew Andoniadis of Andoniadis Retail Services. Andrew uses a matrix of price points and quantity sold to find the best price points for a store. The resulting model will be a bell curve showing where the majority of your sales are. It also helps to ensure that you have merchandise in every price point group: low, medium, and high. Never forget that selling high-ticket items can be crucial in achieving sales and margin goals.
Review price points
How often do you review price points? It is imperative to review details on a regular schedule; at a minimum, review before heading off to your main buying trips. Quarterly is even better, as it allows you to adjust price points quicker and not miss out on extra money walking out the door.
Know what your top-selling price points are. Also determine the price points and vendors that have the best margins already. Many times retail prices haven’t been adjusted adequately, even though the cost of goods is increasing at a regular rate.
Is every category meeting your margin goal? If a class isn’t achieving the goal, determine what you can do to offset it. Books are often a category that is challenged by lower margins but it doesn’t have to be. You can work with remainder companies that sell closeout books at discount prices. By combining remainders titles with list titles, you can develop a much healthier margin for the entire category. Plus you can use it as a loss leader for the department and entice people to look at the book by offering a bargain.
Test prices on best-sellers
A simple way to find hidden margins is by testing price increases on your best-selling SKUs. These are the items that are active sellers with a strong history. A 5% increase in the retail price will show an impact on the profit margins of any item. Keep increasing the price until you see some customer resistance in sales. This resistance is when you know you’ve hit on the top price for this SKU. Don’t be afraid; you can always bring the price back down if you need to.
During my time at Filoli: Historic House and Gardens, we carried a particular bar of soap that was very popular with our visitors. The soap sold about 2,000 bars each year. With sales like this, it is evident that the price of $8.99 was deemed a great value and sold well. The margin at this price point was 58% with a profit of $10,000. The next year we raised the price by one dollar and sold about the same amount, but raised an additional $2,000 in profit and raised the margin to 63% — free money without doing more than changing a price point.
“Never forget that selling high-ticket items can be crucial in achieving sales goals and margin goals.” – Ray McKenzie
Finding extra margin doesn’t have to be limited to increasing prices. When the retail prices can’t be adjusted higher, there are still many ways of finding extra profit. Sourcing new vendors, attending markets to obtain market discounts, and working with your sales rep to find the best are just a few ways to find extra margin.
Janice Wrehl of the Georgia O’Keefe Museum in Santa Fe, New Mexico, proudly calls herself the “Queen of Free Freight.” The first question she asks when visiting with vendors is, “Do you have free freight specials?” And she also asks, “What are your show specials?” Never be afraid to ask for discounts from vendors. Most MUSEUMSANDMORE.COM 45
vendors have specials built in to entice you to buy their products and want you to use them. Many buyers aren’t comfortable asking for discounts, or negotiating volume discounts, but they are a part of the business — that is free money vendors want to give you.
Sometimes you can’t raise the price any higher and yet you still haven’t achieved your margin goal. Working backward from the retail price, you can determine what your ideal cost is. Take this new cost goal to your vendors and work with them directly as vendors want to work with you to keep your business. If they can’t meet the correct price, then it is time to shop around for a new vendor.
Eric Huck, director of retail operations at the Detroit Institute of Art, had to reapproach vendors about its successful T-shirt lines because the margins weren’t achieving the goals he had set. Knowing he didn’t want to raise the prices, Huck developed a new cost goal and took it to the current vendor. They weren’t able to meet that price, so Huck had to find a new vendor. In his search, he found a local T-shirt printer that not only could achieve the price but offered a better shirt and free delivery. The new cost allowed him to raise an additional $8,000 in profit, and the bonus was he was able to market the product as locally made.
In an increasingly competitive and challenging retail market, it is more important than ever that buyers look for every dollar of profit. Use regular reviews of your data, continually review pricing on your current products to ensure you have them at the highest price possible without impacting sales, look for every possible discount and promotion available, and review vendors to ensure you have the best cost available. You can find free money in your current assortment.