While the holiday season is just getting started for most people, the biggest points of retail holiday shopping have already passed for 2017. According to CNN Money, $5 billion was spent by US consumers on Black Friday, and according to TechCrunch, $6.59 billion spent on Cyber Monday! Add Shop Small Saturday with $12.9 billion and Giving Tuesday into the mix, and we have well over $25 billion being spent during this busy retail weekend. The question is – In that big pile of dollars, how much of it went to your small business?
The first step is to compare your current November sales to your November sales of 2016. (If this is your first year in business, it’s important to take accurate notes and keep records for your own personal future analysis.) Did your sales increase? Did they stay the same? Or did they drop from previous years? Whichever circumstance, comparison data is key to successful future planning.
Cost of Customer Acquisition
What most small businesses forget to do is to calculate how much it actually costs them to acquire a customer. When figuring out this number, you must consider:
- Direct advertising costs (ads placed, social media boosts, etc.)
- Marketing costs (business cards, mailed postcards, flyers, brochures, etc.)
- Direct-to-Consumer (vendor fairs, pop-up shops, home parties, etc.)
- Special Promotions (sales, giveaways, freebies, contests, etc.)
When you look at the cost of your customer acquisition divided up against your total sales, how much did it cost you to acquire one customer? Did you invest more money in customer acquisition this year than you did last year? If so, was it effective? If it was effective, which tool of acquisition proved to be the most fruitful? If not, what other aspects of acquisition could you try in this coming year to generate more business revenue?
In the following year, concentrate on what works. If your business is still relatively new, you may need to risk some customer acquisition investments to test the rate of return. The trick to this is to be wise about your target market. Don’t waste your time, money, or energy on investments that do not align with who your target is or who your branding represents. It may be tempting, especially for a new business, to reach into as many different areas as possible, but this is simply counterintuitive if you do not have cash flow. First, align your acquisition with the customers who would be most interested in your products, in second stages (usually years 3+), you can work on becoming the brand in your market space. For example, for my personal product business, first I want people who like bath & body products to know I make soap, the next stages would be to become the soap lady.
Whether you make your own inventory or are a buyer, it’s time to look at what sold versus what is sitting on your shelf. If you’re in direct sales, you may not have control over what fall/winter/holiday inventory your company will unveil each year; however, you can predict what you should stock based on customer behaviors. This is true for people who make or buy wholesale, as well.
Look through your orders and see what products fell into your top tier, meaning your number 1 selling product, and then the top 5% of products offered. Of these products, which produce the greatest profit margin? Of these products, what predictors indicate what upsells consumers will spend on? For example, if I sell shoes, how many of my customers also bought socks?
For the following year, you want to be sure to carry plenty of inventory of your top-selling products as well as your top-selling upsells. If you are not offering upsells, this is definitely something to change for the following year. A smart upsell is predictably related to your “catch” product, but with grossly higher profit margins.
For products that are still sitting on your shelf after the holidays, go ahead and work on moving it out of your inventory in a few creative ways aligned to your branding. Some companies align themselves to sales, for example, Macy’s has a “One Day Sale” almost every week. It’s a good way for them to move inventory. For a luxury boutique, this may not be what you want your particular customer to get accustomed to (or you’ll start to actually change your target customer). In these circumstances, you could hold contests, giveaways, or offer “free product” with a certain dollar amount purchased.
Relating Discount Sales with Smart Upsells
It’s no secret that consumers are willing to spend billions of dollars during the Black Friday weekend because they believe they are going to score great deals, but if big-box stores were losing money, you can bet they wouldn’t participate. Let’s look at an example:
Pair of Jeans Wholesale = $20
Retail Markup (MSRP – Manufacturer’s Suggested Retail Price) = $55
“Black Friday Blowout Sale” 20% Off = $44
Profit Margin = $24 per pair of jeans
Now upsell a matching belt with those jeans.
Belt Wholesale = $10
Retail MSRP = $30
Sale 20% = $24
Profit Margin = $14 per belt
By including a smart upsell, you’ve increased your profit margin from $24 to $38 per grouping.
Other smart upsells for this example could be – “Buy these jeans and get the belt for 50% off!” – In this case, your profits would still be $40!
So, when looking at your plans for the following year, be sure to consider how you can work sales and upsells to your advantage.
Envision Your Goal by Focusing Your Niche
While every retailer wants to be trendy for their own market, trends aren’t always the way to long-term success. Like the bridge in the adage teaches us, just because everyone is doing it, doesn’t mean we should, too. Think about it pragmatically – It’s much easier to sell one product really well than to try and sell ten moderately well. As you explore your own vision for your brand or your business, think about those customers you truly want to focus in on and work to sell a few products to those customers.
An example of this would be Avon. Avon has moved into the lines of home decor, toys, fashion, candles, jewelry, etc. You name it, Avon sells it – but what continues to be one of Avon’s best-selling products of all time? Their Skin-so-Soft brand, which is one of their original formulas from fifty years ago!
Point – If it’s not broken, don’t fix it…and don’t add on to it unnecessarily. To continue with my example, it may be tempting for an Avon rep to carry one of everything in their personal inventory, but it’s not a wise financial decision, particularly in the beginning stages of a business. Look at what is working for your business and work it. Don’t try and accommodate every need because it’s not possible. Sell a few products really well.
What other questions or concerns do you have about your small business planning for 2018? Leave them in the comments so we can address them!