Hi, I am currently looking at a 3,500 Sq. Ft. space that used to be franchised florist. It is right of a major highway and you can see it driving on the highway. About 88,000 people drive by everyday accodring to the town’s website. I spoke with the leasing company and they are quoting me $9,000+utilities per month. To me, it just seems really high. How can I manage to keep the store running at such high prices?
Ask yourself what volume of sales would you need to generate to cover that type of lease?
sales minus cost of goods sold (COGS)=gross margin
if you mark up merchandise 2.5x, your gross margin % is 60%
Gross margin needs to cover rent, utilities, insurance, vehicles, labor, professional fees–your salary–in short, all expenses.
As a VERY general rule of thumb, labor runs about 20% of sales
Make yourself a spreadsheet or do the algebra… Assuming expenses of $12,000/month, my quick calculations show you’ll need to generate at least $30K/month in sales. If you are open 6 days a week, that’s $1,120/day in sales to break even. OF course, if your expenses will be higher than $12,000–you’ll need to adjust the numbers.
Sales $30,000 (this is the number you are calculating)
Gross Margin 60% $18,000
Labor $6,000 (20% of Sales)
Expenses $12,000 change this number as needed based on business plan.
Net Profit $0
I like to use a quick and dirty spreadsheet to do the above calculation… I fill in the formulas for gross margin, Labor and Net profit. Then fill in expenses and sales numbers, adjusting them until I get a zero in the net profit cell. Of course, if you are more comfortable with your algebra–you can always work on paper with a pencil!
Whatever you decide–go in with your eyes open and a plan to succeed–(goals without plans are only hopes).