How can you accurately measure your merchandise budgeting?

1 Define your budget objectives

Before you start measuring your merchandise budgeting, you need to define your budget objectives and align them with your overall business goals. For example, you may want to increase your sales volume, improve your gross margin, reduce your stockouts, or enhance your customer satisfaction. Your budget objectives will guide your decisions on how much and what kind of inventory to buy, how to price and promote your products, and how to manage your stock levels.

2 Use the six-month merchandise plan

One of the most common and useful tools for measuring your merchandise budgeting is the six-month merchandise plan, which is a spreadsheet that shows your planned sales, inventory, and purchases for each month and product category. The six-month merchandise plan helps you estimate your sales potential, plan your inventory needs, control your cash flow, and monitor your performance. You can use historical data, market trends, and customer feedback to create your six-month merchandise plan and adjust it as needed.

3 Apply the basic stock method

Another technique for measuring your merchandise budgeting is the basic stock method, which is a formula that calculates the optimal amount of inventory to have on hand at the beginning of each month. The basic stock method considers your planned sales, your planned reductions (such as markdowns, discounts, and shrinkage), and your turnover rate (which is the ratio of sales to average inventory). The basic stock method helps you avoid overstocking or understocking your products and maintain a healthy inventory turnover.

4 Track your key performance indicators

To measure your merchandise budgeting effectively, you also need to track your key performance indicators (KPIs) regularly and compare them with your budget objectives and plans. Some of the most important KPIs for merchandise budgeting are sales, gross margin, sell-through rate, markdown percentage, and stock-to-sales ratio. These KPIs help you evaluate your sales performance, profitability, inventory efficiency, and customer demand. You can use various tools, such as dashboards, reports, and analytics, to track your KPIs and identify any gaps or opportunities for improvement.

5 Review and revise your budget

Finally, you need to review and revise your budget periodically and make any necessary changes based on your actual results, market conditions, and customer feedback. You should review your budget at least monthly and compare your actual sales, inventory, and purchases with your planned ones. You should also analyze the reasons for any variances and take corrective actions, such as adjusting your prices, promotions, or orders. By reviewing and revising your budget regularly, you can ensure that your merchandise budgeting is accurate and aligned with your business goals.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?