Data provided here comes from our team of experts who have been working on business plan for a retail store. Furthermore, an industry specialist has reviewed and approved the final article.
How profitable is a retail store, and what is the typical monthly income for store owners in various retail sectors?Let's check together.
Revenue metrics of a retail store
How does a retail store makes money?
A retail business makes money by selling goods and services to customers.
What products can retail stores sell?
Retail stores can sell a wide range of products spanning various categories to meet the diverse needs and preferences of consumers.
These products can include clothing and apparel, ranging from everyday wear to formal attire and accessories like shoes, belts, and hats.
Electronics and gadgets such as smartphones, laptops, televisions, and headphones are commonly found in retail stores. Household goods like furniture, appliances, kitchenware, and home decor items are also popular offerings.
Supermarkets and grocery stores provide a vast assortment of food and beverages, including fresh produce, packaged goods, and household necessities like cleaning supplies. Additionally, beauty and personal care products, ranging from cosmetics and skincare to haircare and grooming essentials, are commonly available.
Sporting goods, toys, books, and music are other categories frequently found in retail stores, catering to hobbies and entertainment.
Some stores specialize in niche markets, offering items like jewelry, antiques, collectibles, or specialty foods. Overall, the product range in retail stores is extensive and continuously evolving to adapt to changing consumer demands and trends.
What about the prices?
In a retail store, the prices of products can vary widely based on the type of item you're looking at.
For instance, basic everyday items like toiletries, cleaning supplies, and snacks typically range from $1 to $10. Clothing items can have a broader range, with basic t-shirts and socks falling around $5 to $20, while fancier items like dresses and suits can range from $30 to $200 or more.
Electronics such as headphones, chargers, and small gadgets might be priced between $10 and $100, whereas larger electronics like laptops and smartphones can range from $300 to $1500 or higher.
Home appliances, such as blenders and microwaves, tend to be priced between $20 and $200.
Furniture like chairs and coffee tables can range from $50 to $500, and larger furniture items like sofas and dining sets might start around $300 and go up to $2000 or beyond.
| Product Type | Price Range ($) |
|---|---|
| Toiletries, Cleaning Supplies, Snacks | $1 - $10 |
| Basic Clothing (T-shirts, Socks) | $5 - $20 |
| Fancy Clothing (Dresses, Suits) | $30 - $200+ |
| Electronics (Headphones, Chargers) | $10 - $100 |
| Laptops, Smartphones | $300 - $1500+ |
| Home Appliances (Blenders, Microwaves) | $20 - $200 |
| Furniture (Chairs, Coffee Tables) | $50 - $500 |
| Larger Furniture (Sofas, Dining Sets) | $300 - $2000+ |
Who are the customers of a retail store?
Retail stores have different types of customers, ranging from local shoppers to online buyers.
Which segments?
We've been working on many business plans for this sector. Here are the usual customer categories.
| Customer Segment | Description | Preferences | How to Find Them |
|---|---|---|---|
| High-Spenders | Customers who consistently make large purchases | Quality products, personalized services | Review purchase history, loyalty programs |
| Bargain Shoppers | Customers looking for discounts and deals | Sale items, clearance products | Advertise sales, send discount emails |
| Brand Enthusiasts | Customers loyal to specific brands | Latest products from preferred brands | Monitor brand-related social media activity |
| Impulse Buyers | Customers making unplanned purchases | Eye-catching displays, add-on items | Strategically place products near checkout |
| Online Shoppers | Customers who prefer shopping online | Convenient website, online-exclusive deals | Promote online store, digital advertising |
| Local Shoppers | Customers from nearby neighborhoods | Community events, local products | Participate in local events, collaborate with local businesses |
How much they spend?
In our comprehensive analysis of the retail sector, we've observed that customers generally spend between $50 and $200 per visit to a conventional retail store. This expenditure fluctuates based on various factors including seasonal trends, discounts, and individual purchasing habits.
Consumer data indicates that the average shopper visits a particular retail store around 3 to 8 times a year. The frequency of visits can significantly differ depending on the store's location, product variety, customer service, and the individual's shopping preferences.
By calculating the lifetime value of a regular retail store customer, we estimate it to be from $150 (3x50) to $1,600 (8x200), taking into account the variables mentioned above.
Considering these factors, we can reasonably assert that the average customer contributes approximately $875 in revenue to a retail store annually.
(Disclaimer: the figures presented are based on industry averages and broad consumer trends. They are subject to change based on market dynamics, and may not precisely reflect your specific business circumstances.)
Which type(s) of customer(s) to target?
It's something to have in mind when you're writing the business plan for your retail store.
The profile that typically comprises the most profitable customers for a retail store are the 'loyal and high-spending customers.'
These customers are the most profitable because they consistently shop at the store, make frequent purchases, and often buy higher-margin products.
To target and attract them, retailers can implement loyalty programs offering rewards, discounts, or exclusive perks to incentivize repeat purchases. Personalized marketing campaigns tailored to their preferences can also be effective.
To retain these customers, excellent customer service and experiences are crucial, including fast and hassle-free checkout, responsive customer support, and addressing their concerns promptly. Continuous engagement through email marketing and exclusive offers can help maintain their loyalty, ensuring they keep coming back for more, ultimately contributing significantly to the store's profitability.
What is the average revenue of a retail store?
The average monthly revenue for a retail store can vary significantly, typically ranging from $5,000 to $100,000. The revenue depends heavily on factors such as location, the products sold, and the management strategy. Here's how this range breaks down:
You can also estimate your own revenue, using different assumptions, with our financial plan for a retail store.
Case 1: A small mom-and-pop store in a rural area
Average monthly revenue: $5,000
This type of retail store usually offers essential goods and perhaps a smattering of local specialty products. It serves a small community and faces limited competition. However, its remote location also means less foot traffic and, consequently, lower sales volumes.
Such stores often operate on thin margins and rely on regular customers. They might not offer a wide range of products and usually don't have the luxury of selling high-margin items. Additionally, their rural location could mean fewer opportunities for spontaneous or impulse buying.
Assuming an average transaction value of $10 and around 500 transactions per month, the monthly revenue for this type of store would be approximately $5,000.
Case 2: A medium-sized store in an urban residential area
Average monthly revenue: $50,000
This type of store is commonly found in urban areas, amidst residential neighborhoods. It's larger and carries a more extensive range of products compared to a mom-and-pop store. This store might offer specialty goods, attracting a diverse group of customers looking for convenience and variety closer to home.
Being in an urban area increases the store's exposure to foot traffic. The store might also engage in local marketing efforts to draw in residents. The product range will likely include items with higher margins, and the store may periodically run promotions to boost sales volume.
With an average transaction value of $20 and around 2,500 transactions per month, this urban store could generate monthly revenue of $50,000.
Case 3: A large, upscale retail store in a prime city location or mall
Average monthly revenue: $100,000
At the high end, we have the large retail stores in prime locations, such as busy city centers or popular malls. These stores pride themselves on extensive product ranges, high-end goods, and exceptional customer service.
They capitalize on high foot traffic and consumers willing to pay premium prices for premium products and shopping experiences. These stores also benefit from spontaneous purchases from people visiting the area for shopping and entertainment.
Moreover, such a store invests significantly in marketing and branding efforts, creating an image that attracts a more affluent clientele. It might also host events, sales, and other promotional activities to draw in crowds.
Given the premium nature of the store, the average transaction value could be $50 or more. With around 2,000 transactions per month, such a store stands to bring in monthly revenue of $100,000.
The profitability metrics of a retail store
What are the expenses of a retail store?
A retail store's typical expenses consist of purchasing inventory, rent or lease payments for the retail space, staff wages, and marketing efforts.
| Category | Examples of Expenses | Average Monthly Cost (Range in $) | Tips to Reduce Expenses |
|---|---|---|---|
| Rent and Lease | Store rent, lease payments | $1,500 - $5,000 | Consider a smaller space, negotiate rent, or explore co-sharing arrangements. |
| Utilities | Electricity, water, gas, internet | $200 - $800 | Optimize energy usage, switch to energy-efficient lighting and appliances. |
| Inventory | Cost of goods sold (COGS) | Varies greatly by inventory size and type | Implement inventory management systems to reduce overstock and understock. |
| Employee Wages | Salaries, hourly wages, benefits | $1,000 - $6,000 per employee | Optimize staffing levels, cross-train employees, and consider part-time or seasonal staff. |
| Marketing and Advertising | Advertising campaigns, online marketing | $500 - $2,000 | Focus on cost-effective marketing channels, utilize social media, and track ROI. |
| Insurance | Property insurance, liability insurance | $100 - $500 | Shop around for insurance providers to find the best rates and coverage. |
| Maintenance and Repairs | Store maintenance, equipment repairs | $100 - $500 | Perform regular maintenance to prevent costly repairs. |
| Point of Sale (POS) System | Hardware, software, monthly fees | $50 - $200 | Choose a cost-effective POS system and negotiate fees with providers. |
| Taxes and Licenses | Sales tax, business licenses | Varies by location and sales volume | Stay compliant with tax regulations and explore tax deductions. |
| Office Supplies | Paper, pens, office equipment | $50 - $200 | Buy in bulk and consider eco-friendly supplies. |
When is a a retail store profitable?
The breakevenpoint
A retail store becomes profitable when its total revenue exceeds its total fixed and variable costs.
In simpler terms, it starts making a profit when the money it earns from selling products surpasses the expenses it incurs for rent, inventory, salaries, utilities, and other operating costs.
This means that the retail store has reached a point where it not only covers all its expenses but also starts generating income; this crucial milestone is known as the breakeven point.
Let's consider an example of a small retail store where the monthly fixed costs are approximately $15,000. The store sells various items, and the average gross margin - that is, the sales revenue minus the cost of goods sold (COGS) - is around 50%.
To calculate a rough estimate for the breakeven point of this retail store, you would need to generate $30,000 in sales revenue to cover the $15,000 in fixed costs, assuming the gross margin stays constant at 50%. This revenue could come from selling a combination of products, each contributing differently to the total revenue depending on their price and markup.
It's important to note that this indicator can vary widely depending on factors such as location, size, product mix, operational costs, and competition. A larger retail store with higher overheads would, of course, have a higher breakeven point than a small boutique with fewer expenses.
Curious about the profitability of your retail store? Try out our user-friendly financial plan tailored for retail businesses. Simply input your own assumptions, and it will help you calculate the amount you need to generate in sales revenue to run a profitable business. This insight can assist in strategic planning, pricing, and inventory management to ensure your retail store's success.
Biggest threats to profitability
One of the biggest threats to profitability for a retail store is intense competition, where other stores offering similar products can drive prices down, reducing profit margins.
Additionally, changing consumer preferences and trends can lead to inventory obsolescence if the store's products become outdated or undesirable.
High operating costs, such as rent, utilities, and employee wages, can also eat into profits if not managed efficiently.
Theft and inventory shrinkage, both from customers and employees, can result in significant financial losses.
Economic downturns can lead to decreased consumer spending, impacting sales and profitability.
Finally, online shopping and e-commerce giants can divert customers away from brick-and-mortar stores, posing a continuous challenge to traditional retail businesses.
These threats are often included in the SWOT analysis for a retail store.
What are the margins of a retail store?
Gross margins and net margins are financial metrics used to gauge the profitability of a retail business.
Gross margin represents the difference between the revenue generated from sales of merchandise and the cost of goods sold (COGS) required to acquire those goods.
Essentially, it's the profit remaining after deducting costs directly linked to the procurement of the products sold in the store, such as purchase from suppliers, transportation, and storage.
Net margin, conversely, accounts for all the expenses the retail store incurs, encompassing indirect costs like administrative expenses, marketing, rent, and taxes.
Net margin delivers a comprehensive view of the store's profitability, reflecting both direct and indirect costs.
Gross margins
Retail stores generally have an average gross margin in the range of 20% to 50%.
For instance, if your store generates $20,000 per month, your gross profit could be roughly 35% x $20,000 = $7,000.
Let's illustrate this with an example.
Consider a retail store that sold merchandise this month, amounting to a total revenue of $5,000.
However, the store experienced costs including purchase of goods, transportation, and warehousing.
Supposing these costs total $3,000, the store's gross profit equates to $5,000 - $3,000 = $2,000.
Consequently, the gross margin for the store is calculated as $2,000 / $5,000 = 40%.
Net margins
Typically, retail stores might observe an average net margin ranging from 2% to 10%, as this industry is often characterized by high volume sales but lower margins.
To simplify, if your store's monthly revenue stands at $20,000, your net profit might hover around $1,000, representing 5% of the total.
We'll continue with a consistent example for easy understanding.
Let's revisit our store with sales resulting in $5,000 revenue. The direct costs were previously calculated to be $3,000.
Moreover, the store faces various indirect costs such as marketing expenses, employee wages, insurance, accountant fees, taxes, and rent, assumed here to total $1,500.
After deducting both direct and indirect costs, the store's net profit is $5,000 - $3,000 - $1,500 = $500.
Thus, the net margin for the store would be $500 divided by $5,000, resulting in 10%.
As a retail business owner, it's crucial to comprehend that the net margin (vs. gross margin) offers a more accurate insight into how much money your store is genuinely earning, as it encompasses all operational costs and expenses.
At the end, how much can you make as a retail store owner?
Understanding the net margin is essential for any retail store owner who wants to gauge the profitability of their business. It highlights what percentage of your sales is profit after all expenses have been covered.
The amount you earn significantly hinges on your management skills, business strategies, and market trends.
Struggling retail store owner
Makes $1,200 per month
Starting a small retail store with a limited variety of products, minimal marketing efforts, and inadequate customer service might mean you only generate around $6,000 in total revenue.
If expenses aren't kept in check, perhaps due to high rental costs or unsold inventory, your net margin might not exceed 20%.
So, in this scenario, your monthly earnings would be roughly $1,200 (20% of $6,000). This represents a financial outcome you'd want to improve from.
Average retail store owner
Makes $6,250 per month
Let's consider you own a standard retail store: you maintain a decent product variety, engage in regular promotional activities, and manage a responsive customer service team. As a result, your store generates about $25,000 in revenue.
Assuming you manage your overheads effectively, perhaps by securing better deals with suppliers or optimizing staff shifts, you could achieve a net margin of around 25%.
This would make your monthly earnings approximately $6,250 (25% of $25,000), reflecting a stable yet average performance in the retail sector.
Successful retail store owner
Makes $50,000 per month
Now, if you're fully committed to your retail business, staying ahead of trends, expanding your product lines, innovating with marketing, and going the extra mile with customer experience, your store could generate upwards of $200,000 in revenue.
By strategically managing expenses, such as bulk purchasing, utilizing energy-efficient fixtures, or negotiating shorter supply chains, you could attain an impressive net margin of 25%.
Here, you would be looking at monthly earnings of about $50,000 (25% of $200,000), placing you at the higher end of the profit spectrum in the retail industry.
Realizing these profits requires a thorough understanding of your business landscape, consumer behavior, and continuous strategic planning. So, whether you're aiming to be a successful retail store owner or trying to find ways to maximize your current business, it all starts with a comprehensive business plan for your retail store.