Gary Ray: A Proven Way to Manage Your Purchases
Like I've said before, success in the game trade comes down to having what customers want, when they want it, and in the right quantities—every single time.
This is essential, regardless of the condition of your operating budget. That's why it's critical to have a freestanding budget for purchasing. This method is known as Open to Buy.
Open to Buy tells you how much you should be spending. It's not like expenses, which you always want lower. Your Open to Buy needs to be spent to hit your sales targets. Spend too much and you'll end up over budget. Spend too little and you'll end up in an inventory death spiral.
All you need is Excel or Google Sheets.
I've used Open to Buy for fourteen years with the same spreadsheet. I just hit line 4,700.
The cost of goods sold column (COGS) is raw numbers from my point of sale machine. I get the number from an end of day (or "Z") report. Purchases is what I ordered today, and the available column is my COGS minus my purchases (starting from the previous available column; -$1,427 + $1,957 - $457 = $73, and so on). That's how much I need to spend on product. Ideally it hovers around zero.
Most of my business data comes from this worksheet, rather than my point of sale machine. I use it to track my cost of goods percentages, to project sales for coming months, and to make reports every month, quarter, and year. (The sales column isn't necessary but it's useful for crunching other numbers.)
Open to Buy is a proven method for managing your purchases. Here are a few things to know:
First: It's a cost of goods tracker, not a budget.
If you treat it like a budget, it will bite you.
It assumes your sales patterns are consistent, which they aren't. So plan ahead. Maybe run a surplus in the available column if you've got a big Magic release coming. Or add columns for temporary budget amounts to reduce what's available. (My actual Open to Buy is ten columns wide.)
Second: It's designed to avoid extremes, not keep a careful account.
It's good to check your available cash by comparing last year's end inventory to your current inventory. Since it's just a tracker, the difference between those two numbers can be used to adjust your spreadsheet.
If you're in an expansion year, you might use the extra cash to add inventory dollars into your Open to Buy, rather than jumping into a new department. My budget could easily absorb up to ten thousand dollars in a short period without having to make a decision about something new.
Third: It assumes you have cash cushion.
You don't need to be profitable to use this tool, but you do need to have cash put aside for the ups and downs of retail. Open to Buy is completely oblivious to your cash flow needs. And unlike other retail fields, you likely see large fluctuations both between months and year over year. You need a cushion.
So, as we approach the holidays—the one time when stores tend to be flush—I suggest that, rather than invest in more inventory or better fixtures, you adopt Open to Buy by establishing a cash buffer. You've got nothing to lose. If you abandon Open to Buy, you'll still have the cash.
And again: the ultimate objective of Open to Buy is to have product the moment it's available, regardless of your operating budget condition. That way, you're satisfying demand, gaining valuable customer insights, and triangulating future product releases.
Gary is the owner of Black Diamond Games in Concord, California. He writes the game industry blog, Quest for Fun, has a YouTube channel, and is writing a book on starting and profiting from a hobby game store, due out in December.