Creating and managing a budget is crucial for any business, especially those in retail. A smartly executed budget can help keep a business on track and running smoothly, and it can also help business owners keep track of performance and make tough decisions easier.
Of course, it’s important to remember every business is unique. Even two similar retail businesses in the same segment or niche may have budgets significantly different in certain areas. There is no one-size-fits-all, cookie-cutter approach for creating a budget that will work for every retailer. But there are some important tips you can keep in mind that will help you create a smart budget for your retail business.
1 – Know Your Regular Expenses
One of the first places to start when crafting a budget is the costs that you are already aware of and can predict. For a retail business, this is especially important because there are a number of costs you’ll need to consider, like:
- Cost per unit of product
- Location overhead (especially for brick-and-mortar operations)
- Staff payroll expenses
Obviously, the goal for any business is create a sustainable cash flow and eventually earn a profit, generating more revenue than expenses. To make sure your budget is aiming in the right direction, it’s important to understand how much money it takes to keep your business afloat month-to-month. By breaking down and cataloging the expenses you can already forecast, you can give yourself a baseline for how much revenue you’ll need to generate and how much wiggle room you have to add new expenses to the budget down the line.
2 – Analyze Your Revenue
Just as important as understanding the costs your business accrues is being able to analyze your revenue sources. To properly create a budget your business can execute at a high level, you’ll want to know things like:
- Average customer lifetime value
- Which locations, funnels and touchpoints generate the most revenue
- Which products are the most popular
Knowing how much value your typical customer creates over their time with your business is a crucial metric that can help you craft a strong budget. With the myriad tools available today that can help analyze conversions and track customer behavior, there’s more opportunity than ever to fully understand where your business is making its money. If you’re a brick-and-mortar business with multiple locations, it’s important to know which locations are generating the most income and which ones aren’t pulling their weight. If it comes time to cut costs, you’ll have a better understanding of which parts of the business are essential to the operation and which ones can go.
3 – Anticipate Future Expenses
Obviously, no one can predict the future. But part of creating a strong budget is being able to anticipate to some degree what future costs your business might incur. If you know, for example, you plan to expand the company and hire more employees, you’ll want to include room in the budget to increase payroll. Or, if you plan on relocating to a new office space, it should be part of your consideration when you go about crafting your company’s budget. Other future costs that are worth considering are:
- Equipment upgrades
- Special advertising and other promotional campaigns
- Consulting fees
- Changes to employee benefits
It’s also important to keep your eye on changing national trends. For example, when the United States federal government passed tax reform measures recently, it changed the way many businesses withhold taxes for their employees. And, changing healthcare laws may alter the requirements for employers when it comes to providing healthcare benefits to their workers. No matter where you fall on the political spectrum, for businesses these changes are important to note. They can impact your bottom line and seriously alter parts of your budget. If you aren’t prepared, and if you aren’t keeping good track of how your funds are currently being allocated, it could cause a nasty surprise down the road. That’s why it’s important to prepare for the future, even one-time costs, and do your best to account for it in your budget.
4 – Determine Your Marketing Goals
Now that you’ve figured out the regular costs of running your business, you understand where the revenue is being generated, and you’ve prepared for the future as best as possible, you can start deciding how best to allocate funds for marketing. Depending on what stage your business is in, you may want to spend more or less on certain marketing efforts.
For example, if your brand is just getting off the ground and you need to acquire new customers quickly, it might be wise to invest in paid media like pay-per-click campaigns and paid social media ads. But if your business is already steady and you’re looking at more long-term goals like brand recognition or earned media such as organic shares, you can invest more of your marketing budget into strategies that might not pay off immediately. Longer-term marketing strategies include things like outdoor advertising, print ads, and search engine optimization, or SEO.
These efforts can take months or even longer to truly make an impact, so depending on what your marketing goals are, they may or may not be worth the investment. Your business is unique, and you have specific goals and margins other retailing businesses, even those in your segment, may not share. Knowing the specifics about your business and identifying concrete goals are both essential steps in creating an effective marketing budget.
Again, there’s no strict formula for how best to budget marketing expenses for all retail businesses. Your business has its own specific challenges and benefits. Be meticulous and try to include as many factors as possible when you sit down to create a marketing budget. The more thought and care you put into creating the budget, the easier life will be for you later on down the line.
About the writer: Luke Loftin is a blog writer and an award-winning indie filmmaker. When he isn’t writing about himself, he specializes in finance and health, blogging about all sorts of topics including credit cards, personal loans, bank accounts and the digestive system. He currently writes for LeadsMarket among other sites, and his articles are scattered all across the information superhighway. You can find him on LinkedIn.
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