Strategic Business Planning Simplified

Many differing terms, definitions, and expectations can limit the success of a Strategic Business Planning exercise. I always like to begin by clarifying terms and expectations with my clients and suggest any organization to do the same.  I utilize the following definitions for clarity:

Strategic Planning-Development of the strategic positioning of an organization or division focused on  what needs/wants the business plans to meet along with the financial requirements of the stakeholders.  Branding, customers, products, and channels of distribution strategies are all included and are informed by current business trends and market data.  This a crucial step for any organization to take and it pays big benefits. The risk is that without good follow through and implementation plans it may simply sit on the shelf.

Vision-Usually before or in combination with the Mission Statement. The Vision describes the desired future state. Often the Vision is stated in a couple of succinct sentences and informs the Mission.

Mission-This is usually in the form of a Mission Statement which succinctly states why an organization exists, what it is doing and how, along with it’s competitive advantage. This is a wonderul decision making tool that can be utilized daily in any organization as along as it doesn't simply become a word smithing exercise!

Strategic Initiatives-These come out of Strategic Planning and are a list of key initiatives the organization needs/wants to focus on in order to achieve it's Strategic Plan or positioning.  It's important to not have too many, to make sure they are not too tactical in nature, and of course that they are communicated well within the organization.

Business Planning-A comprehensive business plan that addresses the plan for sales, margin, expenses, and infrastructure usually out for 3-5 years. I usually suggest 3 only.  This plan is qualitative as well as quantitative and includes what the organization wants/needs to accomplish along with how they are going to achieve it. It's important that the qualitative has as much or more focus than the quantitative and that they are both connected well within the organization.

Operations Planning-This is the plan for areas such as facilities and logistics that support the overall strategic business plan.

Annual Budgets-The annual budgets developed to support the business plan for a one year cycle. This includes sales, margin, expenses, and inventory. 

In my practice, I focus on Strategic Business Planning which really combines Strategic Planning and Business Planning from above. It includes:

  • Strategic Planning or positioning.
  • Quantitative-Financial Plans (P&L , Balance Sheet, & Cash Flow) out 3 years only.
  • Qualitative-How will the plans will be achieved?

There are several reasons to develop a Strategic Business Plan and prior to beginning it’s important to understand the purpose and the audience for the Plan.  These include:

  • Funding is needed either for a start up or growth. Potential investors are the audience.
  • Alignment is needed to manage internally. Internal management team is the audience.
  • Buy off is needed for direction and/or financials. Board of Directors is the audience.

The following outline is a useful tool when developing a Strategic Business Plan for any Retail or Wholesale business. (Sections are usually edited or re-arranged depending on purpose, audience, and stage of growth):


    • Desired future state.

    • What wants/needs will/do you fill for your customers that are unique?
    • What does your Brand represent?
    • Who is the customer? Demographics and Psychographics
    • Who is the competition? What do they provide and how?
    • What are the past, present and expected future industry trends?
    • What makes your business different than your competitors?
  • What products will you offer at what price? How will they be assorted?
  • What channels of distribution will you use and how?
    • Bricks and Mortar
    • Web
    • Catalog
    • Wholesale
  • How will you market? How will you get and retain customers?
  • Operational and Financial Execution Plan
    • People
      • What are the current organizational issues and how will they be addressed?
    • Processes
      • What processes need to be implemented or evolved?
    • Systems
      • What systems need to be implemented or evolved?
    • Facilities
      • What facilities are needed or need to be improved or expanded?
    • Financials and Financing
      • P&L,Cash Flow,Balance Sheet
  • Potential risks and contingencies

Developing a solid business plan driven by good strategies is only the beginning. Communicating the plan, getting buy in and developing a successful way to implement and achieve the plan is critical. Please see "Six Steps to Achieving your Business Plan" and "Key Metrics" blogs and/or contact me @ I'd love to hear about your business needs.


Key Metrics for Retail, Catalog, Ecommerce, and Wholesale Organizations-Part #1

Key metrics are a crucial element in the management of any bricks & mortar, catalog, Ecom or wholesale organization from my perspective. The metrics and their values or goals must be developed during the business planning process and then utilized in individual performance plans in order to achieve the plan (Please see blog titled “Six Steps to Achieving Your Business Plan”).  In my practice, I often see a lack of connection and understanding between the business plan, the metrics, and individual performance plans. This creates an opportunity to increase success stories for organizations and individuals.

Key metrics fall into the following categories and should be shared across functional teams with different weighting depending on the impact on the metric by function. The list below includes looks long but really encompasses most metrics utilized to plan and manage a business. Generally, I suggest no more than 4 key metrics for performance reviews:

                Sales and Demand


                Margin and Profit


Let’s begin the discussion with Bricks & Mortar Retail since it’s the most traditional:


  1. Gross Sales @ Retail-Generally means total sales dollars prior to returns and markdowns.
  2. Returns-Dollar amount of goods returned-often stated as a % of Gross Sales. A benchmark might be a 10% rate.
  3. Markdowns-Dollar amount of the discount a customer receives @ retail-often stated as a % of Gross Sales. A benchmark might be 20% markdowns (which is different than 20% off depending  whether it’s stated as a % of gross or net sales). Sometimes markdowns are taken at the register (POS)and sometimes inventory is de-valued with a markdown prior to being sold.  
  4. Net Sales @ Retail -Gross Sales after of returns and markdowns are subtracted


  1. Sales per Square Foot-Gross Sales divided by the selling space (dressing rooms and shoe stockrooms count but other non-selling space does not). This of course varies widely by type of merchandise and store but a rough benchmark like $500-$800 per sq ft gives you an idea. This simply measures the sales productivity of your space and it’s a good way to compare departments within a store or compares stores to each other. You can also figure out what you need the Sales per Square Foot to be based on the amount you pay for rent to insure a good profit.
  2. Sales per Style-Gross sales divided by the number of styles. This gives a benchmark of what the average style produces and is a good metric to review in comparing departments and or when growing or shrinking a category.
  3. Traffic and Conversion- The only way for bricks & mortar organizations to get a true traffic measure that I know of is to use a traffic counter and to record these numbers by day and sometimes by hour over time. This mechanism literally counts the people as they come in the door (hopefully not the employees etc).  If this data is accumulated then one can really compare sales being down 10% to traffic being down 20% as an example. Conversion is the number of transactions divided by the number of customers coming in the door.  In the example above it means that conversion is actually up which is a good thing and may be attributable to better product or better service! These numbers are much easier get in the Direct to Consumer world.
  4. Customer Productivity-Understanding one's customer is key and warrants it's own discussion. In the bricks & mortar world I generally see an opportunity to better capture, understand, and maximize sales through understanding the customer better. 
  5. Average Order Size and Average Units per order- This is net sales(after markdowns) divided by the number of orders. The larger the order size usually the more profitable since logistics costs then become a smaller %. Average Units per order tells you that the average order size of $150 is made up of 2.5 items per order.
  6. Average Unit Retail – Net Sales (after markdowns) divided by number of units sold. It’s a good metric to compare categories (ie average sale of a top versus a outerwear piece or a fishing rod with a piece of tackle). This really tells you what your customer is willing to pay for an item. They might be willing to pay $100 for a jacket and $50 for a top. Note: Sometimes organizations calculate the Average Unit Retail of on hand inventory which is not apples to apples with this figure because of markdowns.  In the above example a jacket might be $120 and the top inventory may be $60.

Margin and Profit

  1. Initial Markup Percentage (IMU%)-(Retail of an item-cost of an item divided by the retail of an item-($10-$4/$10=60%)). This is the mark up that buyers are most focused on when buying product and building an assortment. 60% might be a rough benchmark.
  2. Gross Margin Percentage (GM%)-This is the margin after discounts (merchandise markdowns + marketing discounts) ie the margin when something is sold. Sometimes referenced as maintain margin or final margin.
  3. Cost of Goods Sold (CGS)-This is exactly what is says which is nice. It is the inverse of Gross Margin. So in the example above $6 is the Gross Margin or Gross Profit then $4 is the inverse or cost of the goods.
  4. Operating Margin $/%-This generally refers to margin after all direct expenses of buying and selling the product have been taken into account. This would be GM% less any direct expenses such as advertising expenses.
  5. Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA %)-This is the “bottom line” profitability of a business that many managers are rated on.  A Profit & Loss statement begins with Sales, subtracts cost of goods sold to get to Gross Margin and then subtracts S,G & A expenses such as staffing, warehouse etc  to get to EBITDA. I think many businesses would be happy with a 10% EBITDA as a very rough benchmark.


  1. BOM and EOM-Beginning of month inventory usually stated in units if you are working with styles and stated in dollars if working at the product category level. End of month inventory is the same.
  2. Average Inventory-This is usually stated in dollars for a product category or a total company and is an annual metric. Add together the first month’s BOM plus 12 months of EOM’s and divide by 13.
  3. Turn-This is the rate you “turn” the inventory (like tables in a restaurant). Sales divided by average inventory. This should be apples to apples whether you are on a cost basis or retail basis. Ideally gross sales (net sales + markdowns) would be used but if you don’t have gross you can use net. This is also an annual metric and often compared across companies as a key metric. A benchmark for an apparel company might be a 4 turn.
  4. WOS and DOS-Weeks of Supply and Days of Supply measures how much inventory is on hand at a given time, usually month end. Inventory divided average sales by day (usually the forecast going forward for internal mgmt purposes).
  5. Sales/Stock Ratio or Stock/Sales Ratio- This is simply as stated. I tend to utilize turn annually and then WOS and/or DOS by month at the category level becaise I think it means more.
  6. Sell Through Percentage-This metric is often used more at the item level than at total category level and is key in reacting to business. It is the sales divided by the original on hand. As an example we initially had 100 rice cookers and at the end of the first week we sold 15 which is a 15% sell through-not too bad. The second week we started with 85 and sold 10 which is a 12% sell through. At the end of the first month we sold 40 which is a 40% sell through and now we have 60 left. If something isn’t selling at 10% per week perhaps a markdown is needed or conversely if it’s selling 25% per week then maybe we should get a re-order assuming it’s not seasonal or no longer the fashion.
  7. Gross Margin Return on Investment (GMROI)- This is gross margin dollars (often for a year) divided by average inventory. This measures the marginal profit as a return of the inventory $ invested. A number like 350% or 3.5 is GMROI.

Now let’s talk about the nuances of the Direct to Consumer Catalog Business:


  1. Demand-Catalog begins with Demand vs Sales. Demand measure the demand for an item even if it’s out of stock and the customer did not get it. This is easy to do in the Catalog world, not really done in the bricks and mortar world. ECom and wholesale often try to capture.  This is crucial to know in planning for the future and also for understanding customer satisfaction.
  2. Forecast Accuracy-First of all we all know that it’s always wrong to a certain degree! This is often a key metric for those who forecast but also for those who mange the inaccuracy. Hopefully, the “overs” and “unders” are added together instead of being netted against each other.
  3. Percentage Complete-In the Catalog world everyone needs to know if a book is 90% complete in demand or only 20% or 50% because the final number can change.
  4. Fulfillment-This measures how much of the demand the organization is able to fulfill for the customer and is a key metric of customer satisfaction as well as converts demand to sales. fill rate is another term for the same thing. Often two metrics are measured. Initial fulfillment and final fulfillment which measures the fulfillment after a customer waits for a period of time to get their merchandise. Anything that can’t be fulfilled is a sold out. As always, benchmarks depend on the business but 90-95% often seems to be the target for fulfillment.
  5. Now apply the same metrics above for sales to Catalog.


  1. Circulation and Conversion-Circulation usually refers to how many customers are sent a catalog. Perhaps a good examples is that 3,000,000 people were sent the fall catalog (the aging or quality of those customers is another discussion). Let’s say that 150,000 actually responded or bought something, equaling a conversion rate of 5% (3,000,000/150,000) which is pretty good in the direct to consumer world.
  2. Customer productivity-Customer productivity is a key element in the Catalog world which again warrants  it's own discussion. This data is easily captured in the Direct To Consumer world. Generally Catalogers segment their customer "file" into categories by frequency of purchases and net sales. This is used for circulation planning and when it goes down to the category level utilized specifically for merchandising directly to the customer.
  3. Factor-Factor measures the productivity of the items on each page in that particular catalog. In the same example above let’s say that of the 150,000 people who actually bought something on average they each spent $100 so the total catalog generated $15,000,000 in demand. Let’s also say that each catalog was 120 pages so on average one page generated $125,000 in demand. If a popular outfit on a page generated $250,000 then the factor of that page or outfit equals 2 ($250,000/$150,000).
  4. Demand Per Thousand Pages Circulated (DMPC)-This is my favorite productivity measure. This measures the demand divided by (# of pages in a book (or portion of a page) times the total circulation of the book then divided by 1000). This is a wonderful productivity measure because it enables you to compare productivity book to book and also item or category to each other in one book or across books. (Factor does not).  In the example above a jacket is pictured in ½ of a page. It generated $75,000 in demand. $750,000/ ((.50 x 3,000,000)/1000)=$50 DMPC which compares to the total book @ $41.67. It also compares to a t-shirt that generated $60,000 in demand on a ¼ page @ $80 DMPC.
  5. PMPC-This metric is exactly the same as above but profit/margin is utilized instead of demand which enables you to directly measure the variable profit of an item, page or book.


  1. All margin metrics are the same for Catalog as the Bricks & Mortar section


  1. All inventory metrics are the same for Catalog as the Bricks & Mortar section but certain metrics such as sell through don’t mean as much in this business.          

Part #2 will talk about Ecommerce and Wholesale

Assortment Planning Part #1-Six Factors to Consider When Developing Your Assortment Strategy

Whether you are a bricks and mortar retailer, cataloger, selling on the internet, or a wholesaler, your assortment is key to your success, the “heart and soul” of your business as I call it! Therefore, assortment planning is a crucial activity. I have seen many companies do this well but there is often a real opportunity to take more factors into account to produce the most profitable and sustainable assortment for your brand.

Six factors must be taken into account in planning the size and content of your assortment:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (sales, margin, and inventory)

(I would term these “top down” factors. Part #2 will discuss the “how to” and “bottoms up” execution of the strategy.)

Brand Strategy-Prior to assortment planning, whether in preparation to shop the market or to develop your own product line, developing your brand strategy is crucial. Merchandising/product development must buy into the brand strategy. What does the brand represent? Who are the current customers (demographics and psychographics)? What are they currently buying? Who is the target customer ( often different than the current one)? What do they want and need from you? Who is the competition? What makes you different?

We can all name brands that have faltered because they did not have a clear strategy, it was diluted and/or execution was poor. From my perspective my Alma Mater, Eddie Bauer has been an example of this over the years.

Business Model-If you have a “scarcity” business model (Gilth, Clymb, or Zulily), a “fast fashion” business model, or even a “close-out” business model the content and price of your assortment are much more important than controlling the size of it. Your business model is designed to turn fast and fulfillment is not as important. In fact, running out of merchandise is part of the model and creates future demand! If your model is more traditional and fulfillment is important then the size and flow of your assortment may be as important as the content. If you disappoint your customers by being out of stock in a key denim size, as an example, it really hurts your current and future business!

Market Trends-No one has a perfect crystal ball but current market trends and potential future market trends must be taken into account. This is very qualitative versus the next factor which is fairly quantitative. Some brands must event create their own market trends because they are the leader in their category. This still must be done based on current and potential future consumer trends, wants, & needs.

Sales and Margin History- It is crucial to see what has sold well both last season and the same season last year for your organization. In addition to sales, final margin must also be considered including all discounting! As always, if something sold well but the margins were very low it’s not worth repeating in the same way. Taking a look at the categories and styles that have sold well in the past is often the starting point for assortment planning but I have certainly seen too much weight given to this activity. Even in a traditional business model newness is important! When looking at this history it is good to begin selecting items that can be “carryover” items prior to developing or buying “new styles”.

Channels of Distribution-Whatever your distribution strategy, the elements listed below must be incorporated into planning your assortment:

Bricks and Mortar-You will need to know how many stores, how stores may be grouped and assorted differently, what the floorset and/or visual merchandising strategy, flow, and timing are. We do NOT recommend planning the assortment or style count based on space in the store. Plan your assortment first based on the factors above and adjust in Part #2 if needed.

Catalog-You will need to know when catalogs are being mailed, and how many pages you need to fill along with a productive density plan (# of styles per spread or page). This is generally more of a space and productivity (DMPC) exercise than retail.

E-Commerce-You will need to know the strategy for pages, layout, and navagation here along with search and promotions. In general the assortment is not limited by space here either. Presentation is key!

Wholesale-You will need to know the sales strategy, types of accounts and timing along with and any special order needs of your customers.

Financial Plans-If your organization is planning a +20% increase in sales you may have room to increase the size of your assortment. If they are planning a -10% decrease you probably need to tighten up the assortment. Likewise if cash, which means inventory for you, are tight you may need to decrease the size of your assortment and get higher unit sales out of each item. If your organization needs to improve profitability, which means increased margin for you, then you will have to either limit discounting or increase your initial margins. These factors all have an impact on the size and content of your assortment and must also be considered.

Category financial plans-Based on the brand strategy, business model, history, and financial plans, initial “tops down” category and or brand financial plans can be developed at this point. An example might be helpful! If you know your new brand positioning is an active brand targeting women in their 30’s, you can probably plan the performance tops category up. If your financial plans are +5% perhaps this category is up 10-15%.

Please see “5 Top Tips for Creating Your Merchandising or Product Hierarchy” @

Once again to summarize, six factors must be taken into account when developing both the size and content of your assortment strategy:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (Sales, Margin, & Inventory)

Part #2 will talk about the “bottoms up” or “how to” execution of the strategy.

If you would like to discuss assortment planning further we can be contacted @ or @ 206-369-3726

5 Top Tips for Creating a Merchandising or Product Hierarchy

The first place to start in developing a merchandising strategy is to develop a solid merchandise hierarchy. Often a merchandise hierarchy has five levels such as division, department, and classification in addition to style and sku level. Some systems give the ability to do six levels but most of the time five is plenty.

In developing a merchandise hierarchy it’s important to remember that this hierarchy will be in place for several years and that it will be a key way to organize, plan, & analyze the merchandise strategy and results. Changing a merchandise hierarchy is difficult and often gives “apples to oranges” data for one year following the change. Therefore, it’s a good idea to view this as a very universal hierarchy that accommodates annual style changes.

Maybe an example would help at this point!

Divisions may be defined as: Men’s Apparel, Women’s Apparel, Kids Apparel, & Hardgoods

Departments may be defined as: Jackets, Woven Tops, Knit Tops, Pants, Skirts, Shorts

Classifications may be defined as: Sleeveless tops, short sleeve tops, long sleeve tops

Let’s say that next fall short wool plaid skirts are a trend and this on line retailer is planning on going after that trend. Many retailers make the mistake of developing a classification for short wool plaid skirts. The problem with that is that next year the new trend is going to be floral long skirts and that classification won’t be available. So in the merchandise hierarchy a good way to approach it is to have short patterned skirts, long patterned skirts, short solid skirts, long solid skirts. The universal classifications should be able to accommodate trend changes.

While developing the merchandise hierarchy is a merchandise function it’s important to involve cross functional partners because they will also be working things such as search and marketing spend by departments given growth plans etc. It’s also important to organize cross functional business teams to manage the sales, margin, and profit of a business unit (perhaps the Men’s division) so they need to be involved in the final decision. Some areas such as sourcing are usually organized by fabric so it’s hard to do this across all divisions. Some Merchandise systems allow “super groups” and alternate way to sub-total merchandise so if classifications are set up under each department by fabric then it’s easy to sub-total another way.

Now that you have a workable merchandise hierarchy, a good cross functional team (Merchandising, Sales, Marketing, Finance) to plan and manage the business you will develop sales, margin, inventory, and even the number of skus by department so that a buyer can go shopping for these styles with a number in mind and/or you can give the sku count to your product development team!

In Summary:

1. Develop a universal and timeless merchandise hierarchy ( Division, Department, Classification, and sku) that will work to accommodate seasonal trend changes.

2. Include your cross functional partners in the final decision.

3. Plan your cross functional teams around these divisions.

4. Plan and manage your key metrics (Sales, Margin, Inventory, skus) by these departments

5. Utilize the style/sku plans by department in the marketplace to shop or with product development to design and develop your line

If you would like to discuss your merchandising strategy further please contact us @ or 206-369-3726