Calculating turnover - Is my maths right?

[Jack Burton]

Hi All,

I posted recently about opening a bottle shop (off-licence), and am progressing with the idea.

So I contacted a bunch of suppliers to get an idea of costings for beers, put them into an excel sheet to calculate the costings, which I broke down as:

Case Price / Case Size = Unit Price

Fairly straight forward I think.

Using the unit price (for every item), I then calculated the gross profit for each unit as a % of the unit price.

(Case Price / Case Size) x Gross Profit Percentage = Sale Price

£40 / 24 = £1.66 (per unit cost)
£1.66 x 1.40 (40% gross profit) = £2.32

These calculations I repeated up to 70% gross profit per unit.

This all looked promising, and so I did a quick breakdown of costs per month for my overheads, including rent, rates, my salary, licence fees, accountant, utilities (gas/elec/water/internet), business loan, etc.

The rent and rates I found by looking at some shops to let which gave these values. Then I used the unit price against the overheads and broke it down to what I would need to make per day to break even each month.

All good so far, its broad strokes but gives a good indication of what I would need to make. This looked pretty healthy and put some legs on the idea. Sales wouldn't need to be insane to cover my costs, and would need around 35 customers per day (opening 5 days a week), each spending roughly £10 each. On this type of product that seems very realistic target to achieve.

I then realised I made a big mistake! I used the unit cost including the gross profit in my break even calculation, which meant all the sale price would go to my turnover and I wouldn't be able to re-buy stock.

Now I refactored my calculations so that it was based on the total profit from each customer, and now it all looks very wrong.

I based the above on a 60% gross profit per unit, which averaged out across 300 products as £1.33.

This now means I would need total sales of 200+ units per day, which by my reckoning would on average be 60 customers, each buying 4.1 units, every day open.

If I based this on a 70% gross profit per unit, which averages out at £1.55 per unit, I would need to sell 190 units per day, which over 50 customers would be 3.8 units each.

Basically... does my maths look right on this? Sorry if my terminology is off, its all still new to me. As a pessimistic person the above now seems fairly unrealistic, I have worked in retail before but never on a till and so cant gauge if this is realistic or not.

 

[MBE2017]

You are IMO making a poor plan, start again. Stop thinking how many customers would have to buy how many units to make your break even, and start calculating your costs, and expected turnover based on your expected location.

This stops you trying to change your figures to fit the amount you want, so the figures bear more reality. You might find you make more, or even a loss, but isn't it better to get an accurate forecast?

Costs are easy to find out, so is selling prices, the hard part is generating an accurate turnover figure. You might have to sit outside the proposed area and do a survey for a few days, people count, check out how many competitors there are nearby etc.

Or you could just adjust your figures to suit as you have been so far.

 

[KAC]

How have you dealt with VAT?

 

[Newchodge]

Redo your costs calculation including the purchase price as a cost.

 

[Jack Burton]

VAT I should be below the threshold. However, my current calculations havent included tjis incase I go over.

I was coming from the direction of, what are my anticpated monthly costs going to be, and realistically how much would I need to sell per day to keep the lights on. Scoping out properties, foot fall, etc., is a ways off and I know it will be a big factor to determine if what I need to make is viable based on the location.

 

[GraemeL]

Your calcs are a mess. Terminology is important. You are using mark up and confusingly calling it the wrong name.

Sell at £2. Buy at £1.50....
Gross margin is 50/200 = 25%
Gross profit is 50p
Mark up is 33.3% (or 1.33)

If you know this:-

Then I used the unit price against the overheads and broke it down to what I would need to make per day to break even each month.

Then break that down to a get to a 'daily cost of operating'. Lets pretend thats £100. So you need to make a gross profit of £100 a day to break even.

If your gross margin is 25%, you will need to sell £400 a day to make £100 gross profit. (The calculation is gross profit /gross margin or £100/.25 = £400)
If your gross margin is 20%, you will need to sell £500 a day to make £100 gross profit.
etc

If your gross margin is 25%, then you are marking up products by 33.3%
If your gross margin is 20%, you are marking up by 25%
etc

 

[Jack Burton]

Your calcs are a mess. Terminology is important. You are using mark up and confusingly calling it the wrong name.

Sell at £2. Buy at £1.50....
Gross margin is 50/200 = 25%
Gross profit is 50p
Mark up is 33.3% (or 1.33)

If you know this:-


Then break that down to a get to a 'daily cost of operating'. Lets pretend thats £100. So you need to make a gross profit of £100 a day to break even.

If your gross margin is 25%, you will need to sell £400 a day to make £100 gross profit. (The calculation is gross profit /gross margin or £100/.25 = £400)
If your gross margin is 20%, you will need to sell £500 a day to make £100 gross profit.
etc

If your gross margin is 25%, then you are marking up products by 33.3%
If your gross margin is 20%, you are marking up by 25%
etc

This is exactly what I needed to explain it. I had got the numbers all mixed up. Thanks for the help, I'll get my numbers sorted and post back.

 

[Toby Willows]

You absolutely need to include vat in your retail prices because a bricks and mortar retail not turning over £83,000 isn’t going to survive even on a more usual 50% margin.

 

[Mr D]

You could well end up opening 7 days a week and working insane hours - a shop below £83k you have to ask can it afford staff so you can go to the toilet, have lunch & dinner, take time to visit wholesaler, take time to put stock received out etc.

Most shops are open 7 days a week, only know a handful that work a 6 day week and none are a bottle shop.

 

[Jack Burton]

My new calculations:

Average Unit Cost £ 2.22
Average Sale Price £ 3.99
Gross Profit Margin £ 1.77
Markup 80%

Daily Cost of Operating (open 5 days) £ 309.75
Break even £ 388.50 per day

This isn't with VAT added on, how would I go about adding that in? multiply the Average sales price by 1.20? which will push that up to £4.79 which is not getting into the territory of being unattractive price.

Thanks for helping me out!

 

[Jack Burton]

You could well end up opening 7 days a week and working insane hours - a shop below £83k you have to ask can it afford staff so you can go to the toilet, have lunch & dinner, take time to visit wholesaler, take time to put stock received out etc.

Most shops are open 7 days a week, only know a handful that work a 6 day week and none are a bottle shop.

I would aim to be trading 5 days, or possibly 6 per week, and I would be the sole employee. I am not averse to eating my dinner at the till, and if I need a toilet break closing the shop for 2 minutes, while inconvenient would be cheaper than hiring someone else. The other day(s) I would use for admin, restock, etc.

For me its not about the hours, its about doing something I would really enjoy and get satisfaction from, not aiming to make millions, just enough to maintain my existing life style. If it was about money I wouldn't be opening a retail store

 

[Mr D]

I would aim to be trading 5 days, or possibly 6 per week, and I would be the sole employee. I am not averse to eating my dinner at the till, and if I need a toilet break closing the shop for 2 minutes, while inconvenient would be cheaper than hiring someone else. The other day(s) I would use for admin, restock, etc.

For me its not about the hours, its about doing something I would really enjoy and get satisfaction from, not aiming to make millions, just enough to maintain my existing life style. If it was about money I wouldn't be opening a retail store

This is flu season. Close the shop for a week while you have flu?
Its quite possible in business to spend a lot of hours working for say £1 an hour. Maintaining your lifestyle can be harder than you think.
Nothing to say a shop has to make any profit, you could end up with a daily sale total a few pounds below your costs.

 

[GraemeL]

My new calculations:

Average Unit Cost £ 2.22
Average Sale Price £ 3.99
Gross Profit Margin £ 1.77
Markup 80%

Daily Cost of Operating (open 5 days) £ 309.75
Break even £ 388.50 per day

It cannot be a gross profit margin. Its either a gross profit or a gross margin. As its it a cash value its gross profit.

Average Unit Cost £ 2.22
Average Sale Price £ 3.99
Gross Profit £ 1.77
Markup 80%
Gross Margin 44.3%


If you need to bring in a gross profit of £310 a day by selling product on which you are making 44.3% gross margin, the sales value required is £310/.443 = £698 per day. (equivalent to 175 units at £3.99)

 

[GraemeL]

Mr D might be saying things you want to hear, but don't dismiss them too lightly. The sense of the comments are right. Its REALLY easy to underestimate the costs and be overoptimistic about sales and margins.

 

[Jack Burton]

Alright,

So having another crack at this.

One of my potential suppliers helpfully gave me the calculations to work out the price based on a gross profit % + VAT, which would return my gross profit for each.

Gross Profit Average Per Unit = £1.30
Profit Margin = 31%
Markup = 59%

If I need to make £250 a day to break even, that would mean I need to sell 192 units per day, this would include VAT, and the unit cost. Or £437 total sales value per day over 6 days of trading.

Does this seem more accurate?

Cheers for the help chaps.

 

[Newchodge]

One of my potential suppliers helpfully gave me the calculations to work out the price based on a gross profit % + VAT, which would return my gross profit for each.

Gross Profit Average Per Unit = £1.30
Profit Margin = 31%
Markup = 59%

I don't understand what that has to do with anything.

Calculate everything you pay out to sell one unit. Overheads, VAT, rent, everything, including what you pay for that one unit. That is the cost of your sale. Then calculate what you need to charge to cover the cost of sale and give yourself a profit.

You are getting over comlicated over this.

 

[The Byre]

Is it silly season already?

 

[GraemeL]

Totally wrong. I would strongly advise you not to proceed with this as your grasp of numbers and the concepts of sales / profit is just not at all there.

If your daily overheads are £250 and you make £1.30 per unit, you need to sell 192 units a day to break even. You are correct on that.
How much are you selling each unit for? About £4 a unit? If so then 192 x 4 = £768 sales per day. A far cry from £437.

 

[Vending Siting Services]

Have you done your research on wet sales on the high street? Supermarkets I am sure have had a massive impact on the turnover of booze sales for these outlets.

 

[Jack Burton]

Is it silly season already?

?

Totally wrong. I would strongly advise you not to proceed with this as your grasp of numbers and the concepts of sales / profit is just not at all there.

If your daily overheads are £250 and you make £1.30 per unit, you need to sell 192 units a day to break even. You are correct on that.
How much are you selling each unit for? About £4 a unit? If so then 192 x 4 = £768 sales per day. A far cry from £437.

I see what you're saying, that hadn't been missed by me, and I considered it a given. I would consider my calculations being accurate to illustrate what I would to achieve to make the business work.

Either way, I still need to sell 192 units a day regardless, that is the number I need to consider; is it possible at the average price per unit. If I can sell 192 unit a day then I would be achieving £768 in sales, including the £250 to cover overheads.

Have you done your research on wet sales on the high street? Supermarkets I am sure have had a massive impact on the turnover of booze sales for these outlets.

Not yet, I thought it more prudent to research if its actually feasible on paper before spending a few days in the rain spying on competitors Supermarkets are a challenge, however, my intention was to appeal to the real ale, craft drinker, by purposefully stocking products that are unusual, rare, and different. My overall research is pointing to this being a tough business and I would struggle, what with online shopping and supermarkets with very low pricing.

I think I would kick myself if I didn't at least try to see if this idea had potential. Where I currently live there are 2 large universities (1 with over 35,000 students) and a company in the top 50 fortune 500 who attract a large number of employees who take up residents in my local town. A large hospital which also attracts many employees is close by which attracts people to the area. That doesn't matter if I need to sell a can of beer at an unattractive price to make the business work.

What gives me some hope is that there are shops with the same business format who are (apparently) doing well.

 

[Mr D]

?



I see what you're saying, that hadn't been missed by me, and I considered it a given. I would consider my calculations being accurate to illustrate what I would to achieve to make the business work.

Either way, I still need to sell 192 units a day regardless, that is the number I need to consider; is it possible at the average price per unit. If I can sell 192 unit a day then I would be achieving £768 in sales, including the £250 to cover overheads.



Not yet, I thought it more prudent to research if its actually feasible on paper before spending a few days in the rain spying on competitors Supermarkets are a challenge, however, my intention was to appeal to the real ale, craft drinker, by purposefully stocking products that are unusual, rare, and different. My overall research is pointing to this being a tough business and I would struggle, what with online shopping and supermarkets with very low pricing.

I think I would kick myself if I didn't at least try to see if this idea had potential. Where I currently live there are 2 large universities (1 with over 35,000 students) and a company in the top 50 fortune 500 who attract a large number of employees who take up residents in my local town. A large hospital which also attracts many employees is close by which attracts people to the area. That doesn't matter if I need to sell a can of beer at an unattractive price to make the business work.

What gives me some hope is that there are shops with the same business format who are (apparently) doing well.

£768 a day in sales.
Easily hit VAT threshold in a few months.

Be wary of looking at shops doing well, may take you a while to get to that level (and a lot of money) or could be that an area that will support 4 shops comfortably with the same business format cannot support 5 at all.
Some shops start up and run out of money within months, having sales not quite enough to pay all the bills.

 

[Jack Burton]

Thanks Mr.D.

Based on other peoples opinions I included VAT in my calculations to be on the safe side.

I think I will approach an accountant or business advisor to sit down with and go over my idea and numbers.

 

[Jack Burton]

I can see where some confusion may have come from, the title of my post says "Calculating turnover", which may have caused some confusion with what I was intending to do. This was to see if my business idea was viable by making enough profit to cover my overheads.

Thanks to everyone for the help so far. The idea isn't looking like a go'er which is unfortunate. However, I have contacted some suppliers to see what they can do regarding bulk order discounting as this may allow me to find additional profit without changing the sale price per unit. Obviously this wouldn't be all the time, but could be what swings it. At least what swings the idea of having purely an off-licence and not a Bar/Bottle shop which is where I may end up going down. Drunk people drink more

 

[Mr D]

Margins on non alcohol items can be different too.

 

[MBE2017]

?

What gives me some hope is that there are shops with the same business format who are (apparently) doing well.

Now factor in you possibly starting up, diluting their turnover and profits, and allow for them potentially lowering their prices accordingly.