Digital Marketing

ROA for convenience stores

Boost ROA and Profits at Convenience Stores

At a recent seminar that highlighted the importance of return on assets (ROA) as a key barometer of the financial business, the discussion focused on improving ROA and therefore profitability.

A commonly used calculation for ROA is: ROA = Profit Before Tax / Total Assets

ROA tells the business owner how much profit the business generated for each dollar of asset. Assets include available cash, the value of buildings, real estate, inventory and equipment, and accounts receivable.

You just have to look out your door to know that the retail downstream oil market is asset intensive. To operate our retail business, we need canopies, tanks, pipes, fuel dispensers, pumps, price signs, refrigerators, foodservice equipment, inventory, shelving, cash available to pay for fuel and inventory, and POS and back office . software infrastructure. ROA averages of around 6% for c stores are the current norm.

So how can we improve our ROA?

Starting with the most important, the following list prioritizes where we should focus our attention on increasing return on assets and therefore driving profitability:

1.Improve gross profit margin (GPM)

2.Reduce fixed expenses

3. improve sales

4.Reduce inventory or accounts receivable

As a retailer, the goal is to maximize the store’s gross profit per square foot. Identifying the contribution to UPC earnings will allow management to replace underperforming items that do not meet predetermined earnings targets with items that will meet.

Additionally, automating the process allows management to control the number of items in inventory to help reduce cash tied up in inventory without being caught out of stock. The net result is an increase in profit.

Your back office software should provide the business intelligence tools to identify:

• product received at the correct cost

• catch suppliers delivering products at the wrong cost

• ensure the correct amount of product is received

• make sure the product is scanned at the correct price

• changes in prices, costs, discounts and promotions made in the future

• reconcile refund checks and credits in seconds based on purchases or sales

• reconcile lottery books and ATMs

• reduce the cost of maintaining inventory by buying only what is needed to meet demand

• Identify shrink problems quickly and take corrective action.

• identify and eliminate those items that are your worst contributors to GPM

Just pick three of these items to focus your efforts on getting the best ROI. You will see positive results then start marking the remaining items one by one.

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