Top 5 Ways to Purchase for Profitability

Making money is great, but keeping it is even better! Every business owner or leader is looking for ways not only to make more money but to keep more of it at the end of the day so they can take home more pay, give employees a raise, or invest it back in the business. To retain more of that revenue, you’ll need to find ways to increase profit margins. While carefully choosing the products you sell is a step in the right direction, there are other creative ways to look at purchasing tactics to boost profitability.

Since the spring months tend to be slower in many archery pro shops, it’s a great time to review business operations and see how you can squeeze more profits out of every facet of the business.

Here are my top five ways to buy for better profitability:

Just in Time – One of the biggest drains on profitability is having too much inventory at the wrong time. Unsold inventory translates to additional cost to you every month—possibly as much as 2% or more. This is referred to as “Inventory Carry Cost.” Don’t think this happens to you? How much money do you have in broadheads that hang on the shelf for the first six months of the year until the true selling season hits? Instead of blindly stocking up to fill all these pegs after the hunting seasons, rearrange the space to consolidate with fewer pegs. Next, use your point of sale reports to indicate when you can expect to sell the majority of each item before re-ordering. You can then plan to use a “just-in-time” inventory tactic to bring in the product shortly before the selling season. Using this strategy makes it much more likely that you’ll sell the product before you ever have to pay the invoice (or your credit card bill) 30 days later.

Money Makers – It may not seem like a true purchasing strategy, but one of the best buying strategies for archery pro shops is to buy the shop essentials that enable you to make money on services. Before things get too busy, take a look at your work stations. Is each one equipped with a bow press (with appropriate fingers/pins), draw board, and all the essential hand tools needed to complete the job? Nothing kills productivity like wasting time looking for lost tools, so consider purchasing a storage solution that works for your space and allows technicians to keep tools organized and easily accessible. If you aren’t the one working on equipment, ask your techs whether there are any tools could make their job easier. Maybe it’s a better bow vise or an accurate set of levels for sight setup. All of these relatively small buys will create big opportunities for profit.

Don’t Leap to Soon – Some pro shops are extremely eager to buy directly from manufacturers as soon as possible. That move may allow you to buy at better prices but may also require you to place larger orders that will result in inventory sitting in back stock for long periods of time. As we mentioned, keeping inventory for too long will cost you money. So take advantage of direct pricing only when minimum orders will give you one or two months of inventory. If minimum order quantities will leave you with more than two months of inventory, consider purchasing through a distributor or working with your sales rep to find a solution that works better for your business model.

Let Your POS Work for You – Too many pro shops use a point of sale system as a way to record sales and not much more. But your POS should be doing a lot of the heavy lifting for you when it comes to making buying decisions. Most systems not only do a great job of tracking sales but also give you suggested purchase orders based on the input you provide. Putting in the time to study how many of a product you sell and when you sell it will allow you to tell your system the quantity on hand you’d like to maintain. The accuracy of the suggested purchase order will depend on the accuracy of the data you enter, so while it may take some serious time now, the payoff will be worth it when the busier months come around. Once you’ve established preferred vendors and minimum and maximum quantities, you can make quick work of weekly orders with confidence that your purchasing strategy is being implemented.

Employ a Strategy – One of the biggest factors in the profitability of a purchase is the strategy behind the buy. When planning an inventory purchase, ask yourself these questions: Is it meeting a need for my customers? Do I have confidence in the manufacturer and the product? Can I reasonably expect to sell through the product in the next 30-60 days? Will I make an acceptable profit margin if I sell the product at the fair market value? Will sales of this product impact (positively or negatively) sales of another product in my store? Taking this 360 degree view of a purchase doesn’t guarantee that every buy will be a home run, but it will prevent you from buying solely on your personal view of the product or a super deal offered by a supplier.

Finding the right product for your store is challenging, but it’s only half the battle. Choosing the right supplier, knowing your numbers, and timing the buy all factor into your overall strategy of purchasing for profitability. As you head into the spring months when retail sales may be slower, remember that buying smart now can make it much easier to sell in the months ahead. Utilize the tools and resources at your disposal to understand your business’s operations and you will be in a great position to be profitable.

Want to learn more about purchasing and inventory strategies? Check out the Business Operations courses on the ATA Learning Center. Just go to archerytrade.org and click on Education to get started. You can also contact me via email at kurtsmith@archerytrade.org.