When the buyer says 'the retail margin is too small'... How to shift the buyer's point of view

S:   ....and with our retail margin of 22%....

B:    It's too small.  Our average margin for the category is 28%

S:    So, your average category margin is bigger than your overall company gross margin of 23%?

B:    How do you know that?

S:    Simple, I downloaded your annual accounts from Companies House @ £1 per document. See, on the P&L, second line....  But anyway, let's work with your category margin, providing you tell me your average category stockturn per annum.

B:    No, our stock rotation details are off limits... I shouldn't even have told you our category margin...

S:    Hang on, the more information you give me, the more I can tailor-make a business solution for your category. I have a limited sized cake, and the better I slice it, the greater the value for you. But anyway, for the moment, I can work with your company data.

B:    I'm listening, but make it quick...

S:    Right. As you know we deliver our top selling SKUs to you daily, a stockturn of 250 times per annum, but let's take an average of weekly delivery for the brand, 50 times per annum.

B:    So?

S:    So, our annual sales of £350k of the brand to you means that at any time you are sitting on £7k stocks of our brand, £350/50...

B:    And?

S:    And, with our 22% retail Gross Margin making you £77k Gross Profit per annum on a stock investment of £7k, in other words, you are making £77k Gross Margin Return On Inventory Investment (GMROII*) on our brand. As you can see, £77k divided by £7k times 100 means you are making a Gross Return of 1100% on our brand, a little better than the 22% you were complaining about earlier?

B:    I don't quite get it...

S:    No problem, it took me a week to get my head around it. Our brand is a bit like a bank in which you deposit £7k and you get interest of £77k per annum. In other words 1100% interest!

B:    We make that on all brands....

S:    In your dreams...joking!...   Let me explain?

B:    It had better be good....

S:    Your average company Gross Margin is 23%, in other words £184m on sales of £800m, and your average stock-turn is 17.5 times per annum, as you can see from your balance sheet showing Stocks of £45.7m. Dividing the £45.7m into your sales of £800m on your P&L, means your company is making £184m on your average stocks of £45.7m, an average GMROII of 403%, compared with your GMROII on our brand of 1,100%!

Buyer:            Suppose I told you that our average category stockturn is 27......
SuperNAM:           Now you're talking....

Adventures of SuperNAM (14)
* GMROII