How to Make a Merchandise Budget

Selecting and buying merchandise for a retail operation is one of the keys to making the store a success. A buyer is an important member of a store's staff. The buyer must operate within a budget so the store can be profitable. Deciding how much money to spend on merchandise and where to spend it is difficult at best.

Learn what the total budget has been for previous years for all retail stock. If you know that you will spend the same amount of money this buying season, you know your budgeting constraints already. If you can spend more, your job will focus on making a decision about how to allocate available funds.

Know your merchandising cycle. If you sell winter coats, you have a different cycle than if you sell water skis. Check previous years' activity for cycles and sales volume. Know what was in stock at the beginning and end of each month, and what had to be discounted to be sold. That will make a difference in budget allocations for that department or that item.

Know your space constraints. Obviously what you buy has to have a place to be stored or displayed. If item are being stored somewhere, they are not being seen by the customer, so are not making any money. To write a budget, you must know how much merchandise must be stored and where before you can buy it. The more merchandise that can be displayed, the larger sales are.

Determine if your budget can be increased because of store remodeling and a possible increase in display space, and if you are changing some sales classifications, eliminating items or adding a new direction in sales? Consider these changes when compiling a merchandise budget.

Find out what your competition is doing. This can have a direct impact on your merchandise budget. Decide on what to spend and where based on your knowledge of what you and your competition are selling.

Know your demographics. These factors can change how much you spend on merchandise and its various classifications.

Determine your annual sales per square foot. Then divide by 52 to arrive at your estimated sales per week. Write your budget accordingly. You will not buy merchandise for a week if it sold badly the same week last year.

Plan for all losses from sales, markdowns, clearances, discounts, shoplifting, employee theft, damage to merchandise and record keeping errors. Factor this into your budget.

A merchandise budget must allow the store to fulfill sales goals, avoid being out of stock, prevent overstock and minimize inventory investment.