Every successful business sets goals. In fact, most businesses have many goals, both short term and long term. Sometimes, though, small and medium sized businesses may overlook one very important goal: The shrink goal. To reduce shrink, you need to know your current shrink level, have a plan to reduce it, and have something (a goal) by which you can measure the effectiveness of your efforts. Jim Lockwood, at SevenActions.com, has written a great article on setting SMART goals. These same principles can be applied to setting shrink goals. Here is how:

  • Specific Goal – Specifically, how much shrink is acceptable? Most of us would immediately answer, “None”, but that is not realistic in most cases. Businesses need to understand what shrink is, and then set a goal as to what is the acceptable number, in dollars, and as a percent to sales.
  • Measurable Goal – This is where you need to know your current situation. You’ll need to take inventory to see what is “lost”. Spot checks throughout the year on high shrink items will help you measure progress, and then a follow up inventory, at least annually, will give you your results.
  • Achievable Goal – Don’t set a goal that you don’t even believe you can reach. This is very important. If you have a high shrink level, an achievable goal may be to cut that shrink by 20% over the next year, or it may be achievable to cut it by 40%. If you believe it is possible, after identifying the causes, to reduce shrink by 40%, then it is.
  • Reasonable Goal – It is not reasonable to expect to eliminate all shrink at once. Most of the time, shrink is reduced incrementally by eliminating the current causes, and then reacting to new causes as they arise. With the right plan, and a real commitment to reduction of losses, it is reasonable to expect to lose less than 1% of sales to shrink.
  • Time-Based Goal – Set a date by which you want to achieve your shrink goal. Give yourself a year so that you have a full year of sales to compare with your losses and have a true read of your shrink as a percentage of your sales. However, you can also set “waypoint” dates where you can perform mini-inventories in high shrink areas so you can re-direct your efforts and revise your plan if necessary.

Because a reduction in shrink equates to a huge increase in profits, it is absolutely worth the time and effort to set a shrink goal and hold your business, and yourself, accountable for reaching it.

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