How to Reduce Cost of Goods Sold »
By rbhamil on Apr 5, 2010 in Cost Reduction | 0 Comments
When you open a dollar store one of the ongoing challenges becomes continually reducing the costs associated with the business. One of the biggest impacts to overall profit comes from reducing the cost of goods sold. Even a 1ยข reduction across all of the items that are purchased during a year can amount to thousands and thousands of dollars in savings during that year.
Exactly what is the Cost of Goods Sold? Cost of Goods Sold includes all of the costs of purchasing merchandise for resale. It includes the cost of merchandise itself, freight to get the merchandise to the store, as well as the costs of damaged, wrong, and missing merchandise. All of these costs add up to a high percentage of the total cost of operation once you open a dollar store.
Entrepreneurs who open a dollar store soon find that their business will live and die based on their performance in the cost of goods sold arena. Just as it is a major area of cost, it is also major area for cost reduction. In fact, there are many opportunities to intelligently reduce the spending associated with cost-of-goods-sold. They include:
Freight – As fuel prices continue to rise, examine methods to reduce
freight charges. Consider purchasing merchandise locally, negotiate lower
freight charges by agreeing to a contract, share trailers with other local
businesses, make larger purchases (Freight charges per pallet typically
goes down as the quantity of pallets goes up.). Freight costs are a major
area of focus for those who open a dollar store.
Increase quantities – Buying larger quantities of an item will often result
in a reduction in the per item cost. Many wholesalers won’t remind you of
this every time you buy. After you open a dollar store always remember to
ask about quantity discounts.
Dollar Cost Average – Dollar cost averaging is a process that allows an
entrepreneur who is about to open a dollar store to average the cost of
every item across a compete order. By purchasing a mix of high cost and
low cost items, the average of the total cost divided by the total quantity
becomes the average cost of the order. When working against a set cost
of goods sold target number, this process allows each order to meet the
desired cost as an average of the entire order.
Negotiate – Negotiate and negotiate again for everything!
Broker excess items to others – Take advantage of larger quantity
discounts and then sell excess merchandise to competitors.
When you open a dollar store the cost of goods sold will become a major indicator of success. Be sure that you set goals to continually reduce your cost of goods sold by intelligently examining every cost associated with items that are purchased for resale in your store.
To Your Dollar Store Success!
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