Inventory is a part of many studio operations. Knowing more about retailing can help your bottom line. In many cases your students need supplies, uniforms or equipment. Let’s focus on ways to control overhead and maximize use of finances.
It’s ideal to have a local vendor willing to stock items. How can you help build the best relationship?
- Keep them informed of your schedule so they know when students will be buying. That helps them know when to stock.
- Track sizes when you can. That helps your vendor know what to stock.
- Note how many new students you add in a particular period. If you pick up 4 advanced students each quarter, they’ll need shoes and supplies.
- Negotiate discounts based on student purchase quantities, then pass savings along. It’s a good selling point for parents.
Outsource by order
Some vendors will come to your studio at the beginning of each new session and take orders. They’ll then pull from stock or order from suppliers. As long as your students can get by until materials are available, it helps your vendor manage inventory and costs.
Carry your own inventory
This is one area that affects your bottom line directly. Money committed to inventory isn’t available for studio finances.
General principle: Buy by period rather than annually.
Here’s why… if you buy for the year, money is tied up rather than available. If you borrowed the money you’ll be paying interest for the year. Dollars are also invested based on cost at the time of purchase. The potential benefit: Large quantity buys may allow you to negotiate a larger discount. Then again, your money is not available for your business!
If you buy in smaller amounts prior to each teaching period, you might pay a bit more… but inventory sells and your money is freed up. The only money invested is in items that didn’t sell.
Negotiate best price from vendors: Let them know you are shopping competitively while making sure that you are “comparing apples to apples.” This means pricing the same brand name or making sure items are equivalent quality. If you’re not sure of quality, ask for samples to evaluate.
Let vendors know the total you will be purchasing through the year and ask to use that quantity to set pricing. Pay your bills promptly and let them know you do so. Vendors typically have receivables at 60/90/120 days past due. That costs them money and pushes up prices. Think how you would feel if parents consistently paid in a 120 day time frame (Studio Helper lets you track that, right?) – show the same respect to your vendors that you expect from your parents/clients.
Establish a personal relationship with each vendor representative: That way you can do a better job of leveraging… “Sam, I know you didn’t get the last contract, but I’d love to give you the business this year. What can you do to adjust pricing for this season?”
Inventory items: Did you ever notice stores stock more of popular sizes? Try buying 4 pairs of size 17 1/2 athletic shoes in a store! If you know the “size profile” for each class, it helps you stock the right items. For starting points, go through existing classes and take a survey.
Standardize inventory: Make sure any items are generic enough to be used in the future. That sidesteps the issue where parents of existing students constantly have to purchase new uniforms/materials.
Pricing and Tracking
It’s OK to build a modest margin into products you have purchased in quantity as long as you are setting prices below market cost in your area. Not all the dollars you put into inventory generate the same return. Average across inventory to understand whether you are making the right amount of return to cover your outlay.
Tip: Retailers typically use a selling price spread to allow for unsold item cost. That means they expect, say, 60 percent to sell at list price; 30 percent to sell at a 20% discount, the remaining 10 percent to sell at a 50% discount. That might be items you got in the wrong size, older style items that can still be used for practice or class participation (perhaps not performances). There’s your sale rack! A belly dancing studio near me stocks outfits at a variety of prices, in a variety of sizes. Perfect example.
Track items by category: Following each item in a specific size isn’t enough information to follow trends and stock turnover.
Many retailers use a coding system. Example: 3 digit item code, 2 digit size code. 2 digit “style code,” 3 digit vendor code. 003-04-01-002 would translate to 003 = ballet slipper, 04 = size, 01 = pink, vendor = 002 (Sizemore). Leading zeros are important for sorting, of course.
Knowing quantities on hand over time helps track inventory turnover and can assist with setting base stock levels. Cost per unit and sale price might be other items to track. Recording purchase dates and quantities can help, too. Whatever coding you use, you’ll have information to base future purchase and stocking decisions on.
If your inventory is less complicated, so much the better — it is, though, of value to know “what, how many, cost, markup, reorder point.”
Inventory management and your bottom line: If you “turn your inventory” every quarter, money is in your pocket rather than hanging on a rack or stored in a drawer. Inventory can, of course, be a lot of things. Ballet shoes, karate uniforms, instrument mouthpieces, reeds and music, instruction manuals, specialized lesson notebooks, riding boots, swim outfits. These general principles apply to all of the above.
- Manage stock quantities and “on hand timing”
- negotiate best pricing through bids
- build relationships
- think of inventory as a business