It is important to be profitable fast in a small to medium-sized business, especially in retail.
The retail model is broken, and business owners need to adapt in order to integrate an online and offline approach.
You must figure out how to make money early.
There are universal principles that you can leverage in any retail business to become more profitable, faster.
In this article, you will learn ten principles a profitable retail business.
Often, small to medium-sized businesses do not have the luxury of reserve funds that larger companies have in order to offset early challenges or slow profitability.
Therefore, especially in the beginning, you need to roll up your sleeves and make money.
The majority of SMB retail owners get too overly emotional and attached to their decisions, and this prevents them from adapting and making swift decisions.
It’s okay if it does not work.
Mills Menser, a successful jeweler and financier, says that “if it doesn’t make money, then can it.” He gives sage advice: “Invest to make a dime consistently and double-down on that. At the end of the day, the purpose of business is to serve your clients and make a profit.”
Mills believes that he can make just about any retail business profitable by doubling down on a few things, hyper-focusing, and deploying sound business fundamentals that result in profit — and he has the track record to prove it.
Mills is a business person who has a ton of passionate energy. He was born into the jewelry space and bought the family store from his father in 2007 when yearly revenues were $2 million dollars.
After restaurants, jewelry is second highest-failing retail business because it requires high capitalization for inventory and you have to be great with numbers and building an appropriate clientele that can afford luxury items.
In addition, there is low innovation, low customer service, poor consumer experience, and nepotism is very prevalent in the industry, so if you are not born into the industry then there is usually a barrier to entry.
Mills’ notoriety came from innovating and disrupting the jewelry space.
Last year, Mills generated $7 million dollars in revenue – more than tripling the legacy that his father left him 12 years ago — and now on pace to generate $10 million dollars this year.
This is largely due to the fact that Mills has innovated within the jewelry industry, which has not seen much innovation over the past few decades.
“Do things that make sense for the consumer” — Most people miss this, but it is one of the most important principles to adhere to if you want to build a profitable business.
It is this principle of servicing his clients that Mills is especially keen on.
Growing up in the business, he found it odd that 15 years ago most jewelers did not buy from customers. Instead, jewelry was just one-way where most jewelers were on consignment with diamond dealers, and so those margins were already built in and there was little to no incentive for jewelers to buy back because they would not be able to make much more of a profit if they simply resold. Therefore, most customers would go to a pawn shop instead of back to the jewelry store that they purchased from.
At 16-17, he wanted to try something different and asked his father if he could buy back diamonds from customers. All of a sudden, he was buying 3-4 diamonds a month. This experience was the precursor to Mills’ innovation that is shifting the jewelry industry and making him millions.
Mills knew that one of the best business principles is great communication and transparency. He knew that the jewelry industry is so opaque and often the customers are unaware of margins and pricing. He knew that he would innovate on this mishap and create a company that would give clients the transparency they deserve.
Mills founded Diamond Banc, a private lending and acquisition company. He recognized and saw an opportunity for individuals to use their jewelry as collateral against loans given by Diamond Banc.
This was a huge breakthrough because previously customers were not able to leverage their luxury jewelry as collateral to access catalytic capital. In addition, the only other option was pawn shops that did not give favorable terms and financing to customers. For example, the average pawn loan is $750 and the average Diamond Banc loan is $7,000, with the biggest loan being $400,000. The business model works by leveraging high-priced jewelry that’s valued in proportion to the loan amount.
In simple terms, you pay back your loan with 6% interest and then you get your jewelry back and Diamond Banc gets their money back plus 6%. If you default on your loan then Diamond Banc does not take much of a loss because they are able to resell the jewelry that is given to them as collateral. This business model is working out exceedingly well and reshaping a once stagnant jewelry industry.
At the time of this writing, Diamond Banc loans out ~$500,000 a month with loan clients having a 90% redemption rate! What’s great is that the loan value and the buy price are the same. All the payments are taken electronically on a monthly basis.
The loan is clean and simple and gives the customer a lot of autonomy. Every 30 days, there is an interest-only payment. Anything more than that is taken off the principal until it is paid in full. If the customer accrues 3 missed payments, then Diamond Banc acquires the collateral. It is a very simple process, and all the payments are electronically taken on a monthly basis.
Diamond Banc has been having profound success because this loan type is a great alternative means to catalytic capital that does not require a banker or great credit; instead, you can leverage the luxury jewelry that you own.
In 2029, Mill’s goal is to manage an active portfolio of more than $100 million dollars.
As the founder of Leave Normal Behind I am always speaking with individuals who are “above normal”, becoming the best version of themselves, creating things that matter, giving back, and encouraging others to do the same.
Mils is leaving normal behind and, below, you’ll read 10 ways for you to build a profitable retail business.
10 Principles to a Profitable Retail Business
- You have to focus on gross profit, not on top-line sales revenue.
Gross profit is all that matters because that’s what gives you the cash to pay your overhead and make a profit. In addition, you need to know what your monthly expenses are.
- Do fewer things better.
People love specialization. If you cannot get a good return on your time, then do not do it. Make sure to charge people for exemplary service. Make sure your expenses are built into the price. When selling a product in retail, you have to be more value driven than transactional. This is because you want repeat customers and solid word-of-mouth referrals.
- Look at your space with brand new eyes.
Don’t worry about what everyone else did or you’ll get what everyone else got. Attack it from, “What do I want from this? What gaps can I solve?” Whatever your niche is, don’t do what other people do just because they are doing it too. Instead, do what you are best at and add your own innovative spin. Infuse your personality into your retail business.
- Fewer people paid well.
Fewer higher caliber humans – paying people who do not execute is one of the gravest expenses in a business. The success of your retail business lives and dies on your people. It is much better to work with a smaller, solid team than to expand yourself wide with average to below-average caliber. You will see greater gross profits if you have a strong team that is skilled.
- Pareto principle: 80/20.
Figure out where the money is and then throw away the rest. What is giving your retail business the highest rate of return? Is there a niche in your business that everyone shies away from that you can bring to the top and offer. What is going to propel the business to make money? Do not simply do what you want to do in business; instead, do what your customers are telling you.
- If you get into retail space, educate yourself on your numbers.
Many retail owners do not know their numbers, and this creates toxicity in their business that leads to inefficiencies and collapse. You must ask yourself important questions like: “What are our labor costs?”, “How long do we have inventory for?”, and “What is the percentage of rent compared to gross sales?” (rent should be 5-8% of gross sales).
- Understand there are two ways to run a business: Growth vs. Liquidity (Cash).
Growing sales can have a negative impact. Understand what mode you are in and what levers to pull. Is this a lifestyle business or are you in it to sell? Start with the end in mind. By starting with the end in mind, you will gain clarity on the best moves to make in the present. Identify if your goal is to have the lowest tax liability, most income for your family, or to grow and sell. All of the decisions that you make will be influenced by what you’d like to do with the business.
- Look at other businesses outside of your industry and then use them to cross over.
Most people do not know the percentage of their net profit and how that stacks up against other businesses. How are you doing compared to others? You can gain many innovative ideas by looking at alternative industries and identifying some of the things that work for them. Hotels, massage places, car dealers, etc. all have effective customer loyalty programs and marketing techniques that give them success. How can you implement some of these in your own business?
- Leave your ego at the door and have humility.
This is something that ruins many businesses. Give people autonomy and a very lateral work environment. As a leader, strive to be successful and effective, not right. Be open to feedback as to why you are wrong or can do something more effectively. Empowering your team in this way will make them feel wanted and important. In addition, you will source incredible ideas and feedback that can make you extremely profitable. Recognize that everyone on the team wants the same thing: more success. Establish that any feedback is always coming from a great place and give respect to those who work with you.
- Be radically open-minded and radically transparent.
This is tough for many business owners. At times, we feel like there is a need to be secretive and clandestine while hoarding all the information in our minds and attempting to solve problems by ourselves. If you can be radically open-minded and transparent then you will be able to leverage the mastermind effect from those around you.
Mills has seen great success in the retail business, and if you are able to implement these 10 principles then you will build a profitable retail business. Make sure you are hyper-focused on the things that are most important and double down on what’s working. If it is not making you a profit, then stop it.
Hire an elite team of individuals who can execute. You will save more money in the long run by paying someone what they are worth instead of compromising on a less skilled employee who ends up costing you more time and money to fix the things that they cannot execute correctly the first time.
Know your numbers and understand the mode of business that you are in. Look at other businesses to see what are some new ways you can innovate in your own business to provide more value for your customer. Do not allow yourself to be clouded by ego and live by the principles of humility and transparency. These two characteristics will take you a long way.
Commit to leaving normal behind, becoming the best version of yourself, giving back, creating things that matter, and encouraging others to do the same.
If you do, then you will see more success right away and build a profitable retail business or maximize the profits of your current retail business.
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