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Retail Store Industry Benchmarks

By Becky McCray

Another great source for business intelligence: the Retail Owners Institute offers industry benchmark data on six key financial ratios.

I feel sorry for you city folks who don't have an Atwoods on TwitpicIn 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.

Other sources
Do you have other sources for business intelligence? We’d love to hear about them, and share them with everyone.

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About Becky McCray

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.
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January 25, 2010 Filed Under: entrepreneurship, management, resources, Small Biz 100 Tagged With: retail, Support

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Comments

  1. MissDazey says

    January 25, 2010 at 11:30 pm

    How ever did you know Bruce was looking for this information. He asked me to find it a month ago, never did. Thanks!!

  2. Becky McCray says

    January 25, 2010 at 11:32 pm

    Wonderful! Glad to know it will be useful.

  3. The ROI Team says

    January 26, 2010 at 12:13 am

    Becky,
    Thanks very much for sharing the Retail Owners Institute’s Key Retail Ratios benchmark numbers with your readers!

    The ROI Team

  4. Becky McCray says

    January 26, 2010 at 12:32 am

    Thanks for dropping in so quickly.

  5. PartyWeDo says

    January 26, 2010 at 7:48 pm

    Becky,
    We used this fantastic service from ROI for our franchise system…

    This is really good stuff!

    Bruce

  6. Becky McCray says

    January 26, 2010 at 8:12 pm

    I agree, Bruce. I happily made use of the liquor store benchmarks for my own store.

  7. John Krech says

    January 26, 2010 at 9:56 pm

    This is great data. It is always important to see how we compare to our peers and to be able to take action to improve our performance. Our website at phitch.com features a ROI menu tab armed with a free online calulator to measure the opportunity available by optimizing inventory – essentially improving inventory turnover.

    Having the the right amount of inventory is a big headache for small business, especially retail businesses. The bottom 30% of businesses have nine time more inventory than their top 20% performing peers. This is a huge disadvantage than be eliminated with relative ease with the right technology.

  8. Becky McCray says

    January 26, 2010 at 11:34 pm

    Thanks, John. Inventory is a tricky issue for any small retail business. And even with technology, it involves some tough decisions by the business owners.

  9. Noah Brockman says

    May 11, 2010 at 1:50 am

    Thanks Becky, just printed some info off for a loan packaging client looking at a retail startup. Very useful tool for client education, not to mention timely when the RMA Guide is back at the office.

    Thanks for sharing this!

    Noah Brockman, MBA
    Business Coach, Consultant
    Pointman Consulting, LLC

  10. Becky McCray says

    May 11, 2010 at 2:06 am

    Thanks, Noah. Now if we can just help folks make smarter decisions using this info.

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