BUSINESS

  BY THE NUMBERS

TURN THE RIGHT WAY

CALCULATE AND TRACK YOUR TURNOVER RATE

JAY BINKOWITZ

DO YOU spend hours making frame selections? Why? When we assess which collections to buy or keep we need to understand several bits of information. 1) How much does it cost? 2) What can we sell it for? 3) How much profit does it generate by plan and patient type 4) Is it a need or a want? And, most importantly, we need to track and know our turnover rate (TR) to understand whether the collection is productive for us.

Follow these steps to identify your turnover rate and assess your inventory in just minutes per quarter.

CRUNCH THE NUMBERS

For most product lines, the answer to turnover rate is a minimum of 2x but, ideally, 3x. The best way to increase your turnover rate is to understand that less is more. As an example I have seen that when many folks have room to display 600 frames, they might have 40 brands, or 15 of a brand. (This is known as the flea market effect.) However, I would argue that if you have room for 600 frames, you should only have 20 collections, with 30 units of each. If you stock 30 units of a collection, then you should sell a minimum of 60 units per year.

Assess this on a quarterly basis by using a master list of the collections you carry and how many of each you stock. Since you know you need to sell 60 units for the year, then you also know you need to sell 15 per quarter.

IMPROVING TURNOVER

If you do not sell 15 in one quarter, consider the following:

1. Rotate the location of the product.

2. Adjust the pricing. (This may mean raising the price; don’t assume you should lower it. You may want to position it with more expensive brands.)

3. Call the frame rep., and do a brand training.

4. Create some excitement with a bonus system for your team to support the sell through.

If your TR remains low, work with your rep to exchange the line out or sell it down. But if it does start selling more, stay with it for another quarter. If after three quarters, you are not at or about 15, then it is time to for a new line. For luxury product lines, you may only achieve a 1.5x to 2x turnover rate. This pertains to frames that sell for $800 to $1,000 or more (Price does not include lenses.)

ADDING IT ALL UP

The best way to assess what to buy is to ask the frame reps for the top 10 bestselling styles in the two or three best colors and choose from them. An example of an exception to “TR” are specialty lines that cater to big sizes. Turnover rate is critical to your cash flow and the precious little time we have to work with our frame reps. Because 20% of most inventories generate 80% of our sales, it is important to know your numbers to maximize your productivity and profitability. OM

MR. BINKOWITZ is president of GPN, a leading business management company based in Farmingdale, N.Y. He has had extensive experience in retail operations, merchandising and marketing. Email him at jay@GatewayPN.com, or to comment on this article, visit tinyurl.com/OMcomment.