presents:
Small business promotion with retail speaker Tom Shay
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How are you counting your music?

A different way of inventory control

As a beginning music student, I remember that the concept of 4/4 time was pretty easy to grasp. But when things like 5/8 and 6/4 were introduced things got pretty confusing. And if a piece ever changed in the middle, then this student was lost for a bar or two. Keep it simple and consistent and I was OK.

This may also be true for many businesses.  However, instead of counting music we are talking about counting inventory. Several decades ago, almost every manufacturer shipped any quantity of any item. In later years, manufacturers created minimum order sizes and "factory packs" on many items. In a slow economy some businesses line up secondary suppliers that will ship products in broken case quantity packs and have smaller minimum orders. Unfortunately when secondary suppliers are not available some businesses are forced to discontinue items because they do not sell enough to warrant the investment.

When the economy is strong, many businesses lose that concern for the investment and return to ordering products in any quantity. They return to quantity ordering without any concern for minimum requirements because their cashflow will support this type of buying.

Years ago a speaker told a story of a small business; he called it a "Mom and Pop" business. He said they started the business the way many are started by ordering items on a "onesie" basis. They ran a good business and over the years they made a good profit. However, they came to the point where they said, "Now that we have earned a good profit, we can buy like the "big boys".

The speaker concluded the story by asking this question, "If buying on a "onesie" basis is what made all of the profits for them, then why would they want to change their buying philosophy?"

Most definitely a good question. We are not suggesting this is a solution to any and everyone's business. Instead, the idea of "onesie" purchasing is one that every business that has a limit to the amount of money available should consider implementing.

However, the reason we are suggesting this may be one you may not have considered. Many businesses have a limited range of products but stock them in substantial depth - perhaps like the "Mom and Pop" business we first looked at. This type of business likely has a broader range of customers. Think of this type of business as somewhat of a convenience store; a lot of customers but not a lot of different products for their customers.

If we were to free up some of the money by reducing the depth of the products stocked, we could approach selling in a different way. Think about the customer who has purchased an item from you, but your business has not previously stocked any related accessories.

This customer has had their initial needs met and is a prime candidate to purchase other items from the business. Spoken in financial terms, it has been an old business adage that it will cost you $20 to get a customer to first shop with you, but only $4 to get that customer to return.

Putting the two situations together, we are spending $20 to get a customer to come in and purchase an item. We spend another $20 to get another customer to shop with us. This scenario continues over and over.

Instead, if we have spent the $20 to get the customer in the first time, we can save a lot of money by attracting the same customer back in to purchase accessories at a cost of about $4.

Can this idea work for your business? Your customers may already be telling you the answer if you have heard them say, "Do you have any .... to go with what I have just purchased?" If you have been sending the customer down the street, or across town, they may be going to a store that sells the same things that you would be selling that customer on their next trip to your store. Only, after they have seen it at the other business, they may decide they are going to do their one stop shopping there instead of going back and forth between the two businesses.

My Dad's saying was, "The dog with a full food bowl does not go looking at other dog food bowls". Translated into business terms, if we fulfill all of the customer's needs, then the customer is not going to wander into another business and be tempted to return only to that business.

How do the two ideas tie together? Because most businesses have a limited amount of money available, there is a need to properly focus on how to get the most sales from your inventory. By concentrating on the wants and needs of your core customers, the ones who have purchased the most profitable items and return the most frequently, you can build your business around them.

Having a limited amount of funds means that you may have to reconsider how you are purchasing inventory now. When you concentrate on these most profitable customers, you can count on making some beautiful music.


Tom Shay is a fourth generation small business owner providing proven management and business building ideas through his Profits Plus Seminars, Profits Plus Solutions coaching, books authored, and articles written. Tom can be reached at 727-464-2182 or through his web site: www.profitsplus.org


Profits Plus Solutions, Inc.
PO Box 1577
St. Petersburg, Fl 33731
(727) 464-2182
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