Edge Retail Academy Blog

Building Average Retail Sale

There are only two ways to build sales in a retail business. One way is to increase the number of sales you make and another is to increase the average retail sale (ARS).

In this article, the ARS refers to the value of each item sold rather than the average customer spend, i.e. if a customer buys two items, one for $400 and another for $200, the ARS would be $300.

Examples

Quantity of Sales

Average Retail Sale

Total Sales

Example 1

5,000

$200

$1m

Example 2

3,333

$300

$1m

Example 3

2,500

$400

$1m

As you can see, all of these stores are doing $1m in annual sales but achieve it in very different ways.

In many ways, ARS is the easiest and quickest way to improve because you don’t need any more customers to achieve an increase in sales … you just need to sell the customers you already have better quality, higher priced items.

In fact, in economic times like these, there are fewer customers who have the disposable income to spend on luxury goods like Jewelry so you will often see a decline in the number of items sold. The best way to combat that is to get more dollars from those customers who still have the money by:

  1. Increasing the amount they spend per item (ARS)
  2. Increasing the number of items they buy (Items per Transaction or IPT’s)
  3. Improving the ‘Conversion Ratio’ (ratio of # of customers to # of sales)
  4. Increasing the margin you achieve on each item

Examples

Quantity of Sales

Average Retail Sale

Total Sales

Example 1

5,000

$200

$1m

Example 2

5,000

$300

$1.5m

Example 3

5,000

$400

$2m

In this example, these stores are all doing 5,000 sales a year but due to differences in the ARS, one store is doing $2m in sales while another is doing just $1m.

How to Build your Average Retail Sale

The first step is to identify what your ARS is now. If you don’t know this, you can divide your annual sales (excluding repairs if possible) by the number/quantity of items sold (also excluding repairs) i.e. $830,000 divided by 5,500 items equals an ARS of $151).

Next, set a new target that reflects either your growth objectives or to combat declining customer numbers i.e. if your goal is to increase sales from $830,000 to $1m, you would need to increase the ARS from $151 to $181 ($1m divided by 5,500 sales equals $181). If your number of customers is declining by say 10%, to maintain current sales you will need to increase your ARS to combat that ($830,000 by 4,950 items equals a required ARS of $168).

There are seven (7) specific strategies for increasing your ARS. They are:

  1. Think Up
    This strategy is about attitude and is arguably the most important. There’s a saying amongst sceptics that goes “I’ll believe it when I see it”. Turned around and viewed through the eyes of optimist it goes “I’ll see it when I believe it.”

    So if you don’t believe your customers can afford or want beautiful, expensive jewelry then you won’t stock beautiful, expensive jewelry.

    This first strategy implies that you will only be able to achieve a higher ARS once you and your team believe you have a market for it. Many salespeople tell me, “Our customers are different. They can’t afford expensive jewelry.” With thinking like that they won’t even bother to show customers the better items.

  2. Buy Up
    You can’t sell what you don’t stock. With you new attitude, now it’s time to buy higher priced items. As a rule of thumb, buy items that will retail for 20-30% more than you want to achieve i.e. to achieve an ARS of $168, you need stock that retails between $210 and $240 on average.
  3. Mark Up
    Mark-up not only impacts your profit but also your ARS i.e. a $100 item with a 100% mark-up sells for $200 whereas at 110% mark-up it would sell for $220.
  4. Round Up
    Using Psychological Price Points (PPP) can also increase your ARS. A $78 cost item at keystone would sell for $156 but at a PPP of $195, it would increase the selling price by $39.
  5. Show Up
    There is no point in having beautiful high priced items unless your customers know you have them. Don’t wait to be asked, start showing them.
  6. Sell Up
    Sell your customers the best product they can afford … and you don’t know how much that is! Start at the top price and work your way down if you have to. It’s easier than starting at the bottom and trying to work up.
  7. Shut Up
    The fastest way to give away profit and reduce your ARS is to discount. That $200 item becomes $180 after a 10% discount. So stop offering discounts and learn how to negotiate. At the very least, lessen your discounting for more profit.

Action Steps:

  1. Establish your current ARS
  2. Set a new target ARS

Implement the 7 Steps above

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