Auntie Kate The Resale Expert

A shopkeeper asks:

“Can you tell me how to figure out how much it costs to accept a single item?”

Auntie Kate answers:

This figure is not easy to pinpoint exactly, but we can get a rough number in two steps:

1- Your daily overhead, divided by the amount of time spent per item (obviously, an average). That’s the FIXED COST. Do not include expenses directly related to employees at this point. If you have only one person working, use the full amount of the time segment; otherwise, divide the daily overhead by the number of staff normally present.

2- PLUS how much the person doing the intake specifically costs the business (salary, taxes, etc: yearly cost, so paid vacation days too!) divided by the time s/he spent from start to finish on the procedure. From “Hi how are you?” to on the sales floor, tagged, displayed, ready to purchase. The intake procedure has cost you that amount in LABOR COSTS. Several people worked on one incoming batch? Add them all up. (Now you see why the “touch it once” principle is so important!)

Example: Your business costs you $200 a day to open the doors. You have 2 people on duty; you’re open 10 hours a day. Fixed costs= $10 an hour. That’s step 1.

Your staffer costs you $16 an hour, all inclusive. That’s step 2.

S/he spends 15 minutes accepting, entering, tagging, hanging, putting on the right rack 5 items. 1/4 of an hour = $4 in labor costs. Add in the $2.50 in fixed costs for 15 minutes used up by this task, and you get a total $6.50 for 5 items. So having accepted each item in that consignment has a cost to your business of $1.30. Before it’s sold. Whether or not it ever sells (in which case, it probably costs you even more to get rid of it.) And let’s not overlook that time was spent, as well, in NOT accepting some of the supplier’s items as well.

If your shop is buy-outright? Add that cost of accepting onto the dollar figure you just bought the item for, to be able to determine a profit margin. Paid $4 for that item? It cost you a minimum of $5.30 in reality.

Now obviously, it usually takes more than 15 minutes start to finish (and we’re forgetting the phone call before, the phone call after, the finding and returning of any unsold items etc), and your daily overhead’s probably more than $200 a day, but I chose those numbers as easy to use for illustration.

The reason to know even an approximate figure here is to be aware that some goods simply COST you, rather than making you money.

Just ’cause a customer will buy something is not reason enough to deal in it. If it’s not PROFITABLE you are losing money. Selling an item which does not cover cost of goods and then considering your cost of handling that item within the store after accepting it (straightening and marking down and actually handling it as you sell it) PLUS the use of space for an item not making you money, will bankrupt you.

For more detail on the economics of accepting items, check out your copy of the Manual, and you will find that our Money-wise Guide to Accepting & Pricing will be helpful as well.