Tuesday, December 13, 2016

The Plateau and the Profit Cycle (Tradecraft)

This came from an online discussion yesterday about what to do when you plateau in retail. Plateauing is scary because it seems to indicate your business model is exhausted. That leads to risky behavior, like bad purchases or even new stores. Swim or die is comes to mind, and a store that isn't growing is dying.

You can certainly max out a business at a location, but the tendency, my tendency, is to want to throw in the towel long before I'm actually there. Touring the country and seeing successful one location stores in business for decades was an eye opener. You need population density for sure, but it does seem true you can carefully focus on one thing over time and continue to grow and be successful.

The plateau becomes even more pronounced when you seek efficiencies in the business, since we're so often focused on gross rather than net. The same amount of gross with twice the profit feels like you're spinning your wheels on that plateau, even though you have a much fatter bank account. We dropped Yugioh one year, giving up $100,000 in gross revenue, but not all that much net. That was a plateau year followed by the most profitable year on record. That was a painful but good call.

So what do you do next? Properly invest and start the cycle over. Make sure you pay yourself back as part of this. I keep saying this. Get your money out, repay your investors, prove your business isn't a hobby with cash payments. Investment in people is your best bet, properly managed. That does require a skill set few people possess, but you've gotten this far. Learn it!

So here's the theory of this particular profit cycle:

Grow your store organically, listening to customers, running events, throwing marketing ideas against the wall and seeing what sticks. Go to conventions, sell online, do all the revenue generating activities. Hire people to make money in innovative ways.

Analyze what works and what doesn't. Drop lines that are unprofitable (like comics), even if it means seeing your gross fall. Focus advertising on only what works. Gain efficiencies seen on your bottom line. Drop sales channels that are ineffective or divert resources to ones that are. The "analyze" portion of this is the main focus of my usual posts.

Your gross may not be larger, but your profits are. Invest your money where it matters, most likely people. Added staff increases sales, provided they're being managed to sell or do things that result in sales. Now repeat the process.

This requires a certain business savvy, primarily the ability to pull back from what doesn't work. Pulling back is scary and dangerous because we're customer focused and this says no to customers.

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