Simple math.

A lot of simple math can be used in calculating how successful your business might be. A good, rigorous business plan should do some of this for you.

For instance, divide the known # of stores in your industry by the population, which should tell you if you have sufficient population to survive. Add or subtract factors like tourism, or online sales, etc. But, at the core, if there are 2000 comic shops in America, chances are you need at least 175K population to make it. So you're brilliant and effervescent and bubbly? Maybe you can do it with 150K.... You are willing to work 60 hours a week (and remain brilliant and effervescent and bubbly?), maybe 125K. But it's best to bet on the average, and work up from there....

Similarly, you should be able to get a general idea of 'Sales per Foot.' So if the average bookstore sells at 'such and such' a margin, per foot, and your overhead is 'this much' you can work out whether your store will generate enough sales to pay the overhead. So if you take footage out of retail for service, (coffee, tables, books) then you need to calculate how much extra you are likely to sell in the sq. footage you do have. High rents require higher sales per foot, obviously.

Or 'Sales per Unit'. You can work out how many books you are likely to sell per 10,000 in stock, say, and decide if your books are so good that they'll sell twice as good, or your margins are twice as good, or some combination thereof.

'Average gross profit per sale.' How much each item's Cost of Goods was; the higher the margin, the lower sales you can get away with. The lower the margin, the higher. I've always abided by the 40% margins rule for small business, give or take a few random circumstances, and it's been pretty true for 26 years.

These may seem simple and obvious, but I think sometimes that us Mom and Pop stores have to learn some of these lessons the hard way. When I finally went up to the Small Business department at C.O.C.C. I was taught a simple little formula that has been a life-saver.

Overhead divided by margin = sales.

Nice and simple.

For instance, an overhead of $5000.00 divided by a 40% margin, means you need $12,500.00 to break-even.

You want to be cheaper, sell everything at 20% off? $5000.00 divided by 20%, means you need $25,000 in sales.

You make your own product and can sell for 60% margins? $5000.00 divided by 60%, means you only need 8333.00 in sales to break even.

You own your own building free and clear and work all the hours yourself, so your overhead is only 2000.00 a month? $2000.00 a month divided by 40%, means you need only $5000.00 in sales.

And so on.

None of us are immune from these basics. We all have to calculate overhead costs, and margins and inventory and sales and number of hours worked and ways to get noticed and location and so on....

What one area of the store gives, another area of the store takes away.

The only time I've ever worried about competition is when they seem to be operating outside the normal perimeters. Because, if they are 'reality based' I figure I can compete.

For instance, I had a store that was consistently charging about 20% less than me in a certain product. As you can see from the example above, that would normally mean that store would have to sell $25K worth of product instead of $12.5K worth of product. I found out later they were getting free rent at their location.

And so on...

Anyway, obviously no business is going to last very long without doing these things. It's mostly common sense -- from the start I knew that my overhead couldn't be more than the gross profit, even if it wasn't altogether clear.

When I went up to the college, the small business adviser said I had a "primitive sophistication" in business. Heh. I'll still cop to that, just with way more experience.

Thing is, no one really teaches Mom and Pop. They teach accounting and such, but most of those systems are way too complicated and unnecessary for a M & P.

Cash flow and inventory turnover are probably the two hardest things to figure out, and every business will be different. It took me forever to realize that even at 40% margins I had to sell an item 4 or 5 times to make the profit and still have the inventory and since I was growing inventory for most of my career the formula was even more severe and since business was often slow necessitating discounts it was even more severe....

The two questions early in my career that would send a chill down my back, and to which I am still responding to (like old tapes) is:

"Is this all you got?"

And "Why is this so high priced?"

I don't get either question much, anymore, but somehow I still am trying to answer them.
I think the "Is this all you got?" still happens occasionally for an individual product, and the "why is this priced so high" is just unspoken.

Having a store full of material and appearing to be thriving is the best answer to both questions.

Anyway, I don't think it's actually all that hard to figure out a rough estimate of overhead, and a good estimate of profit margins, and -- the hardest -- an estimate of sales (based on industry averages, etc.)

Or maybe it's just easy for me after all these years, but I can usually do a "Blink" assessment and I think I come pretty close. I don't know background circumstances, like how much money the owners have and how much motivation they have. But I've decided that it almost doesn't matter, because no amount of motivation and money will overcome flawed business plans.