Many retailers – in fact most – start their budgeting process looking at growth in sales for the following year.

They take into account factors such as store openings, store closings, unusual events like elections, and a host of other variables.

The figures are massaged over a period and the individual store budgets are set. Meanwhile, the buying side of the business is looking at stockturns, margins and the like.

Often, incentives for the stores are based on sales performance. After all, that is what they are there for – to sell, sell, sell.

And so there is almost a divide. Stores, please focus on sales. Buyers please focus on margin et al.

A recent experiment that deviates from this thinking is producing some very positive results. Perhaps some readers have already made this change.

We started by coaching store managers in the concept of GP% and more importantly GP$. At the outset, the theory and numbers did not make a huge impact on many managers. They were used to looking at sales and GP was a little too hard. But as the months went by, things started to change. They were aware on a daily basis of their GP% to date for the month and their progress towards their GP$ target.

The focus moved from sales to GP$ especially when they realised that it is these dollars that put food on the table.

They became less inclined to discount to achieve sales, but what also happened is that apart from being told about the relationship between sales, GP% and GP$ i.e. more sales at lower margin is okay provided the GP$ are there, what also happened is that they developed an innate skill in playing the discount/sales game while watching their GP$.

It was a paradigm shift from the previous mentality when sales were sacred and should be achieved at almost any cost.

What was learnt from the exercise is that you can skip the white board and the mathematics. You simply have to explain that the turnover, the GP%, and the GP$ are interrelated. From there on the numbers must be easily available.

What we did was get the stores to provide sales results on a daily basis. Yes, we knew the sales, but we wanted them to be aware of sales every day, and by getting them to report on a daily basis kept them on their toes.

They also have daily access to the GP% month to date plus GP$. Once a week we send an email showing progress on sales, GP% and GP$, again with the focus on GP$.

Yes, there may be some downside. For example, stores being reluctant to take markdowns, but the upside has far outweighed the downside.

This is still a work in progress, but if any reader would like a copy of our approach in spreadsheet format, please email us at [email protected]. This will be kept on record until we have made certain changes that we are presently working through and will then be provided on a complimentary basis.

Of course, this is the easy part. Change management is what is critical.

Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at [email protected] or 0414 631 702