Agency business is when you handle a product as an agent. There are many such products, for example, lotto, post office, newspapers, etc.
A typical SMB retailer would have been an agent for many different products in the past.
Today, critics would complain that this agency's work has low margins, which is often true. Plus, if the agency has a winning product, they will often tend to lower commissions and increase handling costs.
But, I would argue that the key to a modern retail store is to get the people in the door. One point is that a good agency often can bring in people. This is no small matter. Today, a typical major is happy to pay $30 in advertising costs to attract a prospective customer. If it works and they get them in your shop, how much is that worth to you to get a potential paying customer in your shop. How much in advertising do you or people in businesses like yours pay to get them in the door? As an agent, you pay nothing, and if they buy, you will make a slight profit, plus have a chance at extra sales.
Of course, the big question here is will they buy more? Yes, some products, like mobile rechargers, generally do tend to bring in good customers. Many, however, do not.
I recommend if you handle these products by checking your companion reports in your POS software.
This will tell you what sells with a product.
Go to Register reports.
Go to reports > Sales register > Stock Sales companion sales by period
In options, put in, say, last financial year and put in the product.
Now out pops up a report which will give you a listing of all the items that were sold with this item. It is worth examining this list. By rearranging your stock arrangements, you may get more sales.
Then at the end, there will be a total profit. Now the question is, how much of that profit would you have made anyway, with or without that profit. That is something you have to decide.
An analyst like me, as a first-level approximation in the absence of any other information, would probably say
- Some would have brought the extras anyway.
- Some would never have come. This is partly due to the large advertising campaigns many agencies pay.
So I would say 50% of this profit would be lost plus the profit on the agency work.
If you can do a better estimate, let me know. Big Data can help but you will need to ask us to help you there as few can do it in-house.
You now have a start on how useful that agency is to your business.
