Another great source for business intelligence: the Retail Owners Institute offers industry benchmark data on six key financial ratios.
In a section called Store Benchmarks, they break down industry averages into 51 different retail lines. They give five years of data for these six financial ratios:
- Current Ratio
- Gross Margin Percentage
- Return on Assets Percentage
- Debt to Worth
- Pre-tax Profit Percentage
- Inventory Turnover
How to use this data if you’re in retail
Find the classification that best fits your store. Using the Formulas Cheatsheet at the Retail Owners Institute, figure your own store’s ratios. Compare your performance to the average. Compare your trends to the industry trends. Are you doing better, or worse than the category? You’re looking for areas where you do well, where you do poorly, and where you have a bad trend. For example, if your Current Ratio is headed down, you are less able to pay your debts. You may be in for a cash shortage. If the industry average plummeted last year, but you managed to stay even, then you did good!
If you don’t clearly fit a single category, you may need compare a couple of categories that you’re close to.
How to use this data if you’re considering a retail business
Take a look at the category you are considering. Here are some actual industry averages you can plug into your financial projections. If you’re planning to start a store selling custom truck accessories, look at the auto parts and accessories benchmarks. If you have an estimate of how much you think you can sell, multiply that times the average gross margin percentage (36.5%), to get your gross profit. That’s your profit after you pay for the merchandise only. That’s all that’s left to pay salaries, utilities, advertising, and any other expenses. Take your estimated sales times the profit percentage (1.8%) to see what your potential net profit might be.
It may help you find a retail business to avoid. Take a look at new car dealers benchmarks, and click the Profit tab. In 2009, the average dealer suffered a net loss of 2.9% of their sales. Look at lumber and building materials dealers benchmarks. From 2005 to 2009, the percentage shown on the Profit tab dropped from over 3% net profit down to .3%. You might not want to jump into either of these categories right now.
Do you have other sources for business intelligence? We’d love to hear about them, and share them with everyone.
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Becky started Small Biz Survival in 2006 to share rural business and community building stories and ideas with other small town business people. She and her husband have a small cattle ranch and are lifelong entrepreneurs. Becky is an international speaker on small business and rural topics.