Chain Math: A Retailer’s Best and Worst Friend, Explained

As a Store Leader, a common question can be why can’t I just get a few more payroll hours, or another register, or mobile device for getting work done? After all, they don’t cost that much. I have heard that often across my career; in fact, I used to ask that very question. Nothing seems like a lot until you have to do the math at a different level. I have always referred to it as ‘chain math’. It can be your best friend or your worst enemy when trying to work things out at a company level.

When you look at a list of the top 100 retailers in the US, the vast majority of them have more than 500 stores. Many have store counts in the thousands. That seems incredible, and you’ll probably even find a few on that list that will surprise you with how many stores they have (or don’t). Those store counts factor into numerous decisions for these companies and every other retailer with multiple locations. What seems simple expands quickly. What seems dauntingly large can get relatively manageable just as quickly when you move between the macro (total company) level and micro (store level).

It's just a few hours, why can’t I get more

For our examples throughout the rest of this article, let’s assume our company has 850 locations. That will be our multiplier or divisor. A Store Manager would like to get just five more hours for their store. It seems like a reasonable request; in fact, every store should get an extra five hours. (Do you know what I could do with an extra five hours each week? I have heard that countless times over the years.) The payroll team is feeling generous and thinks, sure, five extra hours a week, how much could that be?

Let’s also assume that our average wage for employees is $13.50 per hour when looking at this across the whole company. At the store level, that simple, seemingly innocent request amounts to $67.50 per week (5 hours x $13.50/hour). However, (and here is where ‘chain math’ comes into play as your worst enemy) that suddenly becomes $57,375 per week to give those five hours to every store. And, if we apply that every week (‘calendar math’ is mean too), that now comes to $2,983,500 for the year. Yikes. That is real money and will have a real impact on almost any company’s bottom line.

But it’s an investment to get more sales

I am putting on my glass half full hat now, because often retail managers and leaders know that payroll can (and should) be considered an investment. Here is where that same ‘chain math’ can begin to work in our favor. If we know for sure that those invested five hours would then turn into additional or incremental sales, it can look like a wise choice fairly quickly. Let’s assume that our chain of 850 stores also have an average order value (or average ticket, or average basket, whatever your terminology may be) of $30. With those five hours, we can capture three more transactions every hour. Seems fairly simple, as that is one extra customer transaction every twenty minutes. Sounds great. So, in our stores, that is 15 additional transactions (3 extra over 5 hours = 15 extra transactions). Each of those transactions is worth $30, so we now have a $450 sales lift for our $67.50 investment. Perfect. At the company level, this is an even more impressive sum of $382,500 each week and for the year, amounts to almost $20 million in extra sales. Big win. Our $3 million dollar investment nets nearly $20 million in additional sales. 1

You can see this could work both ways now

This crazy ‘chain math’ does work both ways, at least in theory. If the field teams are challenged to increase sales by $5 million dollars to close out a quarter strong, that can seem like a monumental task at the moment. Because, of course, there is no extra payroll, and no one is sending in extra product or running a promotion. Let’s see how we can simplify that, assuming a three-week window of time (21 selling days). Let’s break this down:

• $5,000,000 across 850 stores = $5,882 for each store

This is already sounding a little more doable. A big number, across many stores, makes for easier work. (Isn’t that how the saying goes?)

Let’s break it down a little more, using our ‘calendar math’ as well.

• $5,882 across 21 selling days = $280 each day.

Hey, this starts to seem more doable. We only need $280 per store per day, and we can pick up and extra $5 million in sales. At $30 per transaction…

• $280 per day is only 9 extra transactions at $30 each

We can do this. What does that mean each hour? (Let’s assume we’re open for an average of 11 hours each day.) That is less than one extra transaction per hour to achieve our goal. The message… ”We need every store to sell one extra transaction each hour for the next 21 days…” And that is how chain math can become your best friend very quickly.

To the untrained eye

As you can see, small numbers can get massive quickly, and vice versa. It can be funny when you see article headlines where companies mention they will be investing “millions” in their people for service. However, now that we have our ‘chain math’ formula, we can quickly see what that really means. To play this out, let’s say this is large company with 15,000 locations. They state they are going to invest $100 million in added employee wages to support their stores and serve customers. That is a big headline, and sounds like a huge sum of money. “Wow, that is a big deal,” outsiders think. The reality is, that gets small very quickly. $100 million across a 15,000 location chain, even at $12 per hour, amounts to…..

• $6,700 (rounded) per store per year

• 560 (rounded) extra hours (for the year)

• 11 (rounded) hours per week per store

Now, eleven extra hours per week is nothing to walk away from. I think every Store Manager I know would gladly take an extra eleven hours per week. But it shows how quickly what sounds like an enormous sum of money ($100 million) quickly becomes barely an extra part-time employee each week.

Sometimes math can be fun, but it does often get in the way of the best ideas we come up with. Other times, when you’re thinking something could be or should be so simple, the complexity of thinking about it across an entire company gets messy. I shared this information as a way of helping leaders think about processes, investments, and payoff differently. Frequently, regardless of the math, we need to do the right things to support our teams and grow our companies. You just have to factor all the elements in as you are doing this.

Did anything surprise you about seeing how ‘chain math’ can make small numbers bigger, or big numbers smaller?

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Photo by Dan Cristian Pădureț on Unsplash

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1 I kept this simple in the main part of the article. The reality of this result is still, for many retailers, not quite the payoff that would be required to justify the added spend. This amounts to about 15% of sales, which is likely a higher payroll percent than a lot of retailers run (especially higher volume operators). The value of those incremental sales can also vary widely based on your gross margin rates. It can get complicated, but hopefully the examples can help illustrate the larger point.