How many blankets can you sell?
Making revenue projections before opening a retail shop is really hard. Here's my best advice for how to approach it.
Welcome. I’m Katherine Raz. I own a shop in Tacoma, Washington called The Fernseed and this is my newsletter about running an independent retail business in the age of Amazon. If you’re a shop owner, or you sell products to small retail businesses, or you’re just curious what this whole business is about, you’re in the right place. (And if this email was forwarded to you, you can sign up to receive it yourself right here. It’s free!)
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A friend of mine has been kicking around the idea of opening a retail shop for years, and she finally signed a lease last week, making it official.
Her rent for the space is something like $1,500/month. While she was considering the location, several people offered her the advice that, “you’d have to sell a lot of blankets to cover that rent!” (She’s planning to sell, among other things, hand woven blankets from the Joshua Tree Blanket Company. The blankets average $85, so yes, she’d have to sell 18 blankets each month to cover rent.)
But I don’t think the people offering her this advice are trying to spreadsheet that out for her. I think they’re saying, “Your idea is crazy, because people aren’t just going to saunter past your shop and impulse buy an $85 blanket. Please don’t subject yourself to the misery of this obvious failure because I care about you.” Which is nice, you know. They do care, and they don’t want her to fail. But they are operating with a limited and untrue set of assumptions about independent retail.
Signing a lease is an intimidating process, because once you’ve done it, there’s no turning back. Time to start selling some $85 blankets! When I was signing my first Fernseed lease for our Proctor location in December 2018, I was visiting my dad for the holidays. I took the 15-page document along with me as homework, to read through and mark with questions for my realtor and lawyer. I told my dad what I was doing, and his response was, “Is there a clause that you can get out of the lease if the business fails?”
In other words, “please don’t subject yourself to the misery of this obvious failure because I care about you.”
It’s pretty common. People just cannot fathom that you can make any money selling expensive, unnecessary goods to the hoi polloi who populate whatever neighborhood you’re planning to open up in.
I cannot count the number of concerned looks I received when I told people I was opening a plant shop. It was like the entire village was coming out to say, “Oh god, honey, I’m so sorry.” It didn’t help that the retail projections templates I found all sounded like they were written in the 1970s. (“This haberdashery specializes trousers!”)
I reached out to SCORE and got connected with two mentors, but that wasn’t helpful, either. The first piece of advice I got was to start as an e-commerce shop to test product demand. Seems wise, except that to grow an e-commerce business to the point where you generate enough sales to validate assumptions takes years and an entirely different set of customer acquisition and marketing tactics. It’s like telling someone to produce a movie in preparation for writing a novel.
The second mentor suggested I open my business in Tacoma’s Freighthouse Square, a place I can only describe as the lovechild of a Greyhound Bus station and a rural antique mall.
I arrived at these SCORE meetings with examples of shops in other towns that were successfully executing the type of business I wanted to launch in Tacoma. “See this shop in San Diego?” I would say. “It’s called Pigment. This is what I’m talking about! How do I find out how much this place is making?”
The answer was that I could use the North American Industry Classification System (NAICS) to research benchmarks by industry. The issue with the NAICS, which many people refer to at least once when sitting down to write a business plan, is that the classification codes are too broad and, in my opinion, out of date. They’re also not geographically specific. Are we talking about a gift, novelty, and souvenir store in Times Square, or Bozeman, Montana?
Frustrated, I sat down and pounded out a spreadsheet with some raw assumptions. How much could I reasonably expect to make selling certain product categories each month? I took a shot in the dark. If I sell each plant for $15 on average, and we sell 4 per day, then we hit $1,800 per month selling plants.
This at least gave me the confidence that I could cover costs and make rent if I signed a lease. While this method for making projections gets you somewhere, it’s still just a projection. Could I really sell four plants and 1.8 handmade pots every day out of this location in Tacoma? HOW MANY BLANKETS CAN I SELL?!?!
The issue here is that these projections are too specific. What you really need to know when making projections for a retail business is:
What is the annual revenue of other independent retail businesses in my geographic area?
What is the annual revenue of businesses similar to the one I want to start in other geographic areas with comparable population size?
How many blankets are THEY selling?
This is what the NAICS is actually good for. I didn’t realize it at the time, but you can look up NAICS revenue data for individual businesses. You have to pay for it ($9.95 per business), but that concrete data is worth a thousand hours staring at a spreadsheet trying to figure out how many soy candles you can sell in a month.
I underestimated in my initial projections — by a lot! Using the “how many blankets” model, I estimated we could make about $250,000 in revenue our first year, but in our first 11 months, we grossed $398,514.
Had I based these projections off actual revenue data from similar businesses, not only would my numbers have been more accurate, I would have felt more confident that businesses similar to the one I was planning on opening actually make money.
This week, I purchased some NAICS data on a handful of retail businesses in Tacoma. Their annual revenue spans $250k on the low end to $1.5 million. That beautiful plant and flower shop in San Diego with three locations? $5.4 million in annual revenue.
My suggestion, if you’re trying to make retail projections, is to start with actual revenue numbers from other businesses and reverse engineer those numbers to fit your model.
Were I to do it again, I would start my projections at the low end of Tacoma-area retail shop averages, then make some additional assumptions.
$250,000 = baseline revenue
+ higher foot traffic area: + $50,000
+ only planning to be open 4 days/week (not the case for us, but for example): - $25,000
+ online store + nationwide shipping: + $10,000
+ owner has previous experience running/marketing similar business: + $10,000
——————
$295,000 per year
These assumptions are also shots in the dark, but they’re not product-based. I just don’t think you can accurately predict revenue based on product category sales assumptions (the “how many blankets” approach). The better benchmark is always what other businesses are already doing. From there, you can break it down into product categories.
Let’s take the example of my friend’s new shop.
$295,000 looks like:
Blankets: $60,000
Stationery: $40,000
Ceramics: $75,000
Candles: $30,000
Home decor: $50,000
Jewelry: $40,000
Now you can make assumptions about average retail prices and monthly sales volumes.
If a blanket retails for $85, you need to sell 59 blankets each month, about 2 every day, to hit $60k/year in blanket sales. Possible? Maybe, if you’re a known blanket destination, or you’re the solo Joshua Tree Blanket Co. licensed retailer in the region and they’re sending traffic your way.
So maybe we adjust! What would you need to sell more of in order to reduce blanket sales to something more reasonable ($40,000), and still hit $295,000 in revenue?
Jewelry, maybe?
Then we start thinking about the why. What are the reasons people will seek out your shop based on an impulse or occasion? And what products will you need to carry to meet that need?
Fernseed is a plant shop, first and foremost. We meet the need when someone wants to buy a new plant for their home. We’re also a gift shop! “Plants make great gifts,” is a phrase we repeat in our marketing, and we offer a potting service and greeting cards to make buying a plant as a gift easy.
Other examples:
Toy stores: a kid needs a gift
Comic book shops: Tuesdays and Wednesdays is new release day
Shoe stores: I need new shoes, or I want to shop for new styles
The shop across the street from Fernseed’s Proctor location, The Proctor Mercantile, carries Fiestaware. I think they’re the only Fiestaware dealer in town. Sunny’s, another plant shop in Tacoma, stocks Hasami porcelain.
You can make better assumptions about what products you’ll sell and how many when you start engineering the reasons your customers will shop with you and keep returning to your shop. You can have one big reason, or a number of little reasons.
Here are two little, random reasons people come back to Fernseed:
Potting mix refills. We offer 1/2 price refills on potting mix if you bring our little potting mix bags back to the store
Incense. We stock a certain kind of incense that people really like, and I’ll often ring someone up who says, “I love this incense, you’re the only place I can find it.”
To understand how you’ll hit your projected revenue, you should identify:
The handful of core reasons new customers will seek you out
The ongoing reasons your core customers will keep coming back
The new reasons you will entice old and new customers to seek you out again and again
For our shop, it looks like this:
The handful of core reasons new customers seek us out: we sell house plants, plants and flowers make great gifts, we sell handmade pottery, we do wedding flowers
The ongoing reasons our core customers keep coming back: buying new plants (40% off 4-inch plants on Mondays), buying fresh flowers regularly (20% off stem bar Tuesdays), customer loyalty program (plant punch card), potting mix refills, incense
The new ways we entice old and new customers to seek us out: new and rare plants, big sales, floral holidays
What I’m doing here is illustrating how you take the total shot-in-the-dark guessing out of the retail projections process. Contrary to what a lot of people assume, you are not just selling trinkets to whomever happens to pass by. You are giving a community of people in your geographic region a reason to visit an establishment to get a simple need met. Pulling data about how much money other shops are making by filling similar needs helps you understand what the potential is. Then it’s your job to figure out what needs you’ll meet to hit similar revenue goals — revenue goals that, backed by data, you know are possible in your region.
I wish someone would have explained this to me when I was starting out, because I really did think it all boiled down to how many people would happen by and make a purchase.
While you do need to figure out how many blankets you need to sell to make rent, now you have a better method for basing your assumptions in real data, and a plan for making those assumptions a reality. The confidence that inspires is helpful in the face of all those well-meaning people who express their loving, albeit misguided, concern.
Now, go forth and sell blankets!
Thank you thank you for breaking g this ish down so simply and succinctly- we need people like you to speak these truths so we can keep more (insert type of) blanket shops open… and thriving!