A gift shop keeps about half of each sale before its costs, but not evenly. Souvenirs, magnets, ornaments and keychains bought by the gross, keep the most of each dollar; local art and local foods keep the least, because the maker takes a bigger share; apparel with the town's name on it brings the most money, because it sells the most. Gross margin = (sales − cost of goods) ÷ sales, worked out by category, and then shrink, the theft, breakage and stock gone stale, comes off. Doubling the cost, called keystone, gives a 50% margin. In the example below, a Bar Harbor gift shop's July runs at a 52.2% gross margin, 50.8% after shrink, and 27.9% net before the owner's pay, and the year, with its quiet winter, at about 17%. Below is each category, the month down to net, what moves it, and a free workbook.
The short version
- Work out gross margin by category: (sales − cost of goods) ÷ sales.
- Keystone, doubling the cost, is a 50% margin; souvenirs bought in bulk keep more, local art and foods less.
- Take shrink off each category's gross profit; small, pocketable items are lost the most.
- Apparel brings the most money on a mid margin, because it's the biggest category.
- A summer month's net margin isn't the year's: a seasonal shop pays rent in winter too.
- In the example, 27.9% net in July and about 17% for the year, before the owner's pay.
- TaroStack receives each delivery at what it cost and reports margins by product and losses by reason. More below.
An example: a Bar Harbor gift shop's July
Frenchman Bay Gifts, the made-up gift shop on Main Street in Bar Harbor, Maine, I use in these examples, sells $60,000 in July:
| Category | Sales | Gross margin | Shrink | After shrink | Margin after shrink | Share of sales | Share of profit |
|---|---|---|---|---|---|---|---|
| Apparel: sweatshirts, tees, hats | $18,000 | 55% | 1.5% | $9,630 | 53.5% | 30% | 31.6% |
| Local art and prints | $6,000 | 45% | 1.5% | $2,610 | 43.5% | 10% | 8.6% |
| Candles and home | $9,000 | 50% | 1.5% | $4,365 | 48.5% | 15% | 14.3% |
| Maine foods: jams, maple, chocolate | $12,000 | 45% | 1.5% | $5,220 | 43.5% | 20% | 17.1% |
| Souvenirs, magnets, ornaments | $9,000 | 65% | 1.5% | $5,715 | 63.5% | 15% | 18.8% |
| Cards and books | $6,000 | 50% | 1.5% | $2,910 | 48.5% | 10% | 9.6% |
| The store | $60,000 | 52.2% | 1.5% | $30,450 | 50.8% |
Souvenirs are 15% of sales and 18.8% of what's left after shrink, because a magnet bought for 70 cents sells for $2. Local art and Maine foods are 30% of sales and a quarter of the profit, but they're why people walk in instead of past: a shop of only magnets and sweatshirts looks like every other shop on the street. These are this shop's numbers, not rules; how margin and markup differ is in markup vs margin, and how the shop's whole year works in gift shop business plan.
The month down to net
| The month | Amount |
|---|---|
| Sales | $60,000 |
| Gross profit after shrink | $30,450 |
| Card fees, 2.5% of sales | −$1,500 |
| Seasonal staff, 12% of sales | −$7,200 |
| Rent | −$3,500 |
| Utilities | −$400 |
| Insurance | −$250 |
| Register and software | −$120 |
| Website | −$60 |
| Ads | −$400 |
| Other costs | −$300 |
| Left, before the owner's pay | $16,720 |
| Net margin | 27.9% |
July is the best month. The shop opens daily from May to October and on winter weekends, and the rent, insurance and software don't stop in January, so the year's $321,500 of sales leaves $56,210, about 17.5%, before the owner's pay. How to work out net margin from a year's numbers is in net profit margin formula.
What moves the net
| Change | In July |
|---|---|
| Maine foods bought direct from the makers, 45% to 50% margin | +$600 |
| Shrink half a point lower, 1.5% to 1% | +$300 |
| Apparel margin one point higher, 55% to 56% | +$180 |
| Souvenir sales up 10%, at 63.5% after shrink, less card fees and staff | +$441 |
| Card fees a quarter point higher | −$150 |
Buying local foods straight from the makers instead of through a distributor is worth the most, and it's the gift shop version of what grocers do in grocery store profit margins by department. Shrink is the part the shop controls day to day: small items near the register, a count of the pocketable stock each week, and jams and chocolate sold oldest first so none go past their dates. How a smaller store's margins compare is in convenience store profit margin.
Is a gift shop a profitable business?
It can be, in a town with visitors. In the example, the summer months carry the year: $16,720 in July, and losses in January and February. The margin on each sale is healthy; what decides the year is how many months the street is busy, and whether the rent fits the slow ones.
Get the workbook
Download the gift shop margins workbook. Two sheets: by department, where you type each category's sales, gross margin and shrink, and the gross profit, shrink, what's left after shrink and each category's share of sales and profit fill in; and the month, where you type card fees and fixed costs, and what's left before the owner's pay and the net margin fill in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
A category's margin is a number someone typed, and it hides the items: which sweatshirt sells and which sits until October, which supplier's candles went up two orders in a row, and whether the shrink was magnets or jam past its date.
How TaroStack does it
TaroStack receives each delivery at what it cost and reports margins by product and losses by reason.
Margins on real costs. Each delivery is received at what it cost, margins by product use it, and a price-creep report by supplier shows which vendor's prices are rising.
Losses by reason. Every adjustment carries its reason, lost, damaged or expired, so shrink is reported by item, and the magnets and the jam are separate lines, not one 1.5%.
Dated foods sold oldest first. Jams, maple and chocolate are received with their lots and best-before dates, and first-expired-first-out is the default.
| The job | Workbook | In TaroStack |
|---|---|---|
| Shrink | A typed share by category | By reason, item and site |
| A supplier's price creeping up | Unnoticed | Price-creep report by supplier |
| Jam near its date | Found on the shelf | Lots with best-before dates, oldest first |
Receiving, lots and expiry, losses by reason and margin reports are on every plan, from $49 a month; TaroStack connects to Square. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.